英文版罗斯公司理财习题答案Chap005.docx

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1、CHAPTER5INTERESTRATESANDBONDVALUATIONAnswerstoConceptsReviewandCriticalThinkingQuestions1. No.Asinterestratesfluctuate,thevalueofaTreasurysecuritywillfluctuate.Long-termTreasurysecuritieshavesubstantialinterestraterisk.2. Allelsethesame,theTreasurysecuritywillhavelowercouponsbecauseofitslowerdefault

2、risk,soitwillhavegreaterinterestraterisk.3. No.Ifthebidwerehigherthantheask,theimplicationwouldbethatadealerwaswillingtosellabondandimmediatelybuyitbackatahigherprice.Howmanysuchtransactionswouldyouliketodo?4. Pricesandyieldsmoveinoppositedirections.Sincethebidpricemustbelower,thebidyieldmustbehighe

3、r.5. Therearetwobenefits.First,thecompanycantakeadvantageofinterestratedeclinesbycallinginanissueandreplacingitwithalowercouponissue.Second,acompanymightwishtoeliminateacovenantforsomereason.Callingtheissuedoesthis.Thecosttothecompanyisahighercoupon.Aputprovisionisdesirablefromaninvestor,sstandpoint

4、,soithelpsthecompanybyreducingthecouponrateonthebond.Thecosttothecompanyisthatitmayhavetobuybackthebondatanunattractiveprice.6. Bondissuerslookatoutstandingbondsofsimilarmaturityandrisk.Theyieldsonsuchbondsareusedtoestablishthecouponratenecessaryforaparticularissuetoinitiallysellforparvalue.Bondissu

5、ersalsosimplyaskpotentialpurchaserswhatcouponratewouldbenecessarytoattractthem.Thecouponrateisfixedandsimplydetermineswhatthebond,scouponpaymentswillbe.Therequiredreturniswhatinvestorsactuallydemandontheissue,anditwillfluctuatethroughtime.Thecouponrateandrequiredreturnareequalonlyifthebondsellsforex

6、actlyatpar.7. Yes.Someinvestorshaveobligationsthataredenominatedindollars;i.e.,theyarenominal.Theirprimaryconcernisthataninvestmentprovidestheneedednominaldollaramounts.Pensionfunds,forexample,oftenmustplanforpensionpaymentsmanyyearsinthefuture.Ifthosepaymentsarefixedindollarterms,thenitisthenominal

7、returnonaninvestmentthatisimportant.Companiespaytohavetheirbondsratedsimplybecauseunratedbondscanbedifficulttosell;manylargeinvestorsareprohibitedfrominvestinginunratedissues.TreasurybondshavenocreditrisksinceitisbackedbytheU.S.government,soaratingisnotnecessary.Junkbondsoftenarenotratedbecausethere

8、wouldbenopointinanissuerpayingaratingagencytoassignitsbondsalowrating(it,slikepayingsomeonetokickyou!).10. Thetermstructureisbasedonpurediscountbonds.Theyieldcurveisbasedoncoupon-bearingissues.11. Bondratingshaveasubjectivefactortothem.Splitratingsreflectadifferenceofopinionamongcreditagencies.12. A

9、sageneralconstitutionalprinciple,thefederalgovernmentcannottaxthestateswithouttheirconsentifdoingsowouldinterferewithstategovernmentfunctions.Atonetime,thisprinciplewasthoughttoprovideforthetax-exemptstatusofmunicipalinterestpayments.However,moderncourtrulingsmakeitclearthatCongresscanrevokethemunic

10、ipalexemption,sotheonlybasisnowappearstobehistoricalprecedent.Thefactthatthestatesandthefederalgovernmentdonottaxeachother,ssecuritiesisreferredtoasreciprocalimmunity.,13. Lackoftransparencymeansthatabuyerorsellercan,tseerecenttransactions,soitismuchhardertodeterminewhatthebestbidandaskpricesareatan

11、ypointintime.14. Onemeasureofliquidityisthebid-askspread.Liquidinstrumentshaverelativelysmallspreads.LookingatFigure7.4,thebellwetherbondhasaspreadofonetick;itisoneofthemostliquidofallinvestments.Generally,liquiditydeclinesafterabondisissued.Someolderbonds,includingsomeofthecallableissues,havespread

12、saswideassixticks.15. Companieschargethatbondratingagenciesarepressuringthemtopayforbondratings.Whenacompanypaysforarating,ithastheopportunitytomakeitscaseforaparticularrating.Withanunsolicitedrating,thecompanyhasnoinput.16. A100-yearbondlookslikeashareofpreferredstock.Inparticular,itisaloanwithalif

13、ethatalmostcertainlyexceedsthelifeofthelender,assumingthatthelenderisanindividual.Withajunkbond,thecreditriskcanbesohighthattheborrowerisalmostcertaintodefault,meaningthatthecreditorsareverylikelytoendupaspartownersofthebusiness.Inbothcases,the“equityindisguisehasasignificanttaxadvantage.17. a.Thebo

14、ndpriceisthepresentvalueofthecashflowsfromabond.TheYTMistheinterestrateusedinvaluingthecashflowsfromabond.b. Ifthecouponrateishigherthantherequiredreturnonabond,thebondwillsellatapremium,sinceitprovidesperiodicincomeintheformofcouponpaymentsinexcessofthatrequiredbyinvestorsonothersimilarbonds.Ifthec

15、ouponrateislowerthantherequiredreturnonabond,thebondwillsellatadiscountsinceitprovidesinsufficientcouponpaymentscomparedtothatrequiredbyinvestorsonothersimilarbonds.Forpremiumbonds,thecouponrateexceedstheYTM;fordiscountbonds,theYTMexceedsthecouponrate,andforbondssellingatpar,theYTMisequaltothecoupon

16、rate.c. Currentyieldisdefinedastheannualcouponpaymentdividedbythecurrentbondprice.Forpremiumbonds,thecurrentyieldexceedstheYTM,fordiscountbondsthecurrentyieldislessthantheYTM,andforbondssellingatparvalue,thecurrentyieldisequaltotheYTM.Inallcases,thecurrentyieldplustheexpectedone-periodcapitalgainsyieldofthebondmustbeequaltotherequiredreturn.18. Along-termbondhasmoreinterestrateriskcomparedtoashort-termbond,allelsethesame.Alowcouponbondhasmorei