英文版罗斯公司理财习题答案Chap005.docx

CHAPTER5INTERESTRATESANDBONDVALUATIONAnswerstoConceptsReviewandCriticalThinkingQuestions1. No.Asinterestratesfluctuate,thevalueofaTreasurysecuritywillfluctuate.Long-termTreasurysecuritieshavesubstantialinterestraterisk.2. Allelsethesame,theTreasurysecuritywillhavelowercouponsbecauseofitslowerdefaultrisk,soitwillhavegreaterinterestraterisk.3. No.Ifthebidwerehigherthantheask,theimplicationwouldbethatadealerwaswillingtosellabondandimmediatelybuyitbackatahigherprice.Howmanysuchtransactionswouldyouliketodo?4. Pricesandyieldsmoveinoppositedirections.Sincethebidpricemustbelower,thebidyieldmustbehigher.5. Therearetwobenefits.First,thecompanycantakeadvantageofinterestratedeclinesbycallinginanissueandreplacingitwithalowercouponissue.Second,acompanymightwishtoeliminateacovenantforsomereason.Callingtheissuedoesthis.Thecosttothecompanyisahighercoupon.Aputprovisionisdesirablefromaninvestor,sstandpoint,soithelpsthecompanybyreducingthecouponrateonthebond.Thecosttothecompanyisthatitmayhavetobuybackthebondatanunattractiveprice.6. Bondissuerslookatoutstandingbondsofsimilarmaturityandrisk.Theyieldsonsuchbondsareusedtoestablishthecouponratenecessaryforaparticularissuetoinitiallysellforparvalue.Bondissuersalsosimplyaskpotentialpurchaserswhatcouponratewouldbenecessarytoattractthem.Thecouponrateisfixedandsimplydetermineswhatthebond,scouponpaymentswillbe.Therequiredreturniswhatinvestorsactuallydemandontheissue,anditwillfluctuatethroughtime.Thecouponrateandrequiredreturnareequalonlyifthebondsellsforexactlyatpar.7. Yes.Someinvestorshaveobligationsthataredenominatedindollars;i.e.,theyarenominal.Theirprimaryconcernisthataninvestmentprovidestheneedednominaldollaramounts.Pensionfunds,forexample,oftenmustplanforpensionpaymentsmanyyearsinthefuture.Ifthosepaymentsarefixedindollarterms,thenitisthenominalreturnonaninvestmentthatisimportant.Companiespaytohavetheirbondsratedsimplybecauseunratedbondscanbedifficulttosell;manylargeinvestorsareprohibitedfrominvestinginunratedissues.TreasurybondshavenocreditrisksinceitisbackedbytheU.S.government,soaratingisnotnecessary.Junkbondsoftenarenotratedbecausetherewouldbenopointinanissuerpayingaratingagencytoassignitsbondsalowrating(it,slikepayingsomeonetokickyou!).10. Thetermstructureisbasedonpurediscountbonds.Theyieldcurveisbasedoncoupon-bearingissues.11. Bondratingshaveasubjectivefactortothem.Splitratingsreflectadifferenceofopinionamongcreditagencies.12. Asageneralconstitutionalprinciple,thefederalgovernmentcannottaxthestateswithouttheirconsentifdoingsowouldinterferewithstategovernmentfunctions.Atonetime,thisprinciplewasthoughttoprovideforthetax-exemptstatusofmunicipalinterestpayments.However,moderncourtrulingsmakeitclearthatCongresscanrevokethemunicipalexemption,sotheonlybasisnowappearstobehistoricalprecedent.Thefactthatthestatesandthefederalgovernmentdonottaxeachother,ssecuritiesisreferredtoas'"reciprocalimmunity.,13. Lackoftransparencymeansthatabuyerorsellercan,tseerecenttransactions,soitismuchhardertodeterminewhatthebestbidandaskpricesareatanypointintime.14. Onemeasureofliquidityisthebid-askspread.Liquidinstrumentshaverelativelysmallspreads.LookingatFigure7.4,thebellwetherbondhasaspreadofonetick;itisoneofthemostliquidofallinvestments.Generally,liquiditydeclinesafterabondisissued.Someolderbonds,includingsomeofthecallableissues,havespreadsaswideassixticks.15. Companieschargethatbondratingagenciesarepressuringthemtopayforbondratings.Whenacompanypaysforarating,ithastheopportunitytomakeitscaseforaparticularrating.Withanunsolicitedrating,thecompanyhasnoinput.16. A100-yearbondlookslikeashareofpreferredstock.Inparticular,itisaloanwithalifethatalmostcertainlyexceedsthelifeofthelender,assumingthatthelenderisanindividual.Withajunkbond,thecreditriskcanbesohighthattheborrowerisalmostcertaintodefault,meaningthatthecreditorsareverylikelytoendupaspartownersofthebusiness.Inbothcases,the“equityindisguisehasasignificanttaxadvantage.17. a.Thebondpriceisthepresentvalueofthecashflowsfromabond.TheYTMistheinterestrateusedinvaluingthecashflowsfromabond.b. Ifthecouponrateishigherthantherequiredreturnonabond,thebondwillsellatapremium,sinceitprovidesperiodicincomeintheformofcouponpaymentsinexcessofthatrequiredbyinvestorsonothersimilarbonds.Ifthecouponrateislowerthantherequiredreturnonabond,thebondwillsellatadiscountsinceitprovidesinsufficientcouponpaymentscomparedtothatrequiredbyinvestorsonothersimilarbonds.Forpremiumbonds,thecouponrateexceedstheYTM;fordiscountbonds,theYTMexceedsthecouponrate,andforbondssellingatpar,theYTMisequaltothecouponrate.c. Currentyieldisdefinedastheannualcouponpaymentdividedbythecurrentbondprice.Forpremiumbonds,thecurrentyieldexceedstheYTM,fordiscountbondsthecurrentyieldislessthantheYTM,andforbondssellingatparvalue,thecurrentyieldisequaltotheYTM.Inallcases,thecurrentyieldplustheexpectedone-periodcapitalgainsyieldofthebondmustbeequaltotherequiredreturn.18. Along-termbondhasmoreinterestrateriskcomparedtoashort-termbond,allelsethesame.Alowcouponbondhasmorei