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Mini Case CH-3: Questions And Answers

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Mini Case CH-4
A) Par or face value, Coupon rate, Maturity ,Issue date and Default risk.

B) Call provision: a provision in the contract of the bond which gives the issuer the ability to redeem the bond before its maturity date.
Sinking fund provision: a provision in the contract of the bond that requires the institution issuing the bond to retire a portion of the bond annually.
Risk: Call provision: Risky for investor and the relatively safe for the issuer.
Sinking fund provision: Risky for issuer and the relatively safe for the investor.

C) an asset value is the present value of its expected future cash flows

D) By calculating the stream of requiring interest payment +return of par at maturity.
By using a financial calculator I input : …show more content…

E)
1- By using a financial calculator I input : n = 10, rd = I/YR = 13, PMT = 100, and FV = 1000
To get PV=837.21., the value of this bond is $837.21, Discount. 2- By using a financial calculator I input : n = 10, rd = I/YR = 7, PMT = 100, and FV = 1000
To get PV=1,210.71, the value of this bond is $1,210.71, Premium.

3- A premium bond value will decrease at maturity.
A discount bond value will increase at maturity. Because all bond reach par value at maturity.

F) 1- By using a financial calculator I input : n = 10, PV=-887 , PMT = 100, and FV = 1000 rd = I/YR=10.91 .Discount.

By using a financial calculator I input : n = 10, PV=-1134.2 , PMT = 100, and FV = 1000 rd = I/YR=7.08

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