CHAPTER 17 QUESTIONS AND PROBLEM

FINANCE  Investment Analysis and Portfolio Management CHAPTER 17 QUESTIONS AND PROBLEM  
 1.     Explain the difference between calling a bond and a bond refunding. 


 2.     Identify the three most important determinant of the price of a bond. Describe the effect   of each.   


 3.     Given a change in the level of interest rates, discuss how two major factors will influence   the relative change in price for individual bonds. 


4.     Briefly describe two indenture provisions that can affect the maturity of a bond.  

5.     Explain the differences in taxation of income from municipal bonds, from U.S. Treasury   bonds, and from corporate bonds. 

6.     For several institutional participants in the bond market, explain what type of bond each   is likely to purchase and why.  

    7.     Why should investors be aware of the trading volume for bonds in their portfolio? 

8.     What is the purpose of bond ratings?  

  9.     Based on the data in Exhibit 17.1, which is the fastest-growing bond market in the world?   Which markets are losing market share? 

10.     Based on the data in Exhibit 17.2, discuss the makeup of the Japanese bond market and   how and why it differs from the U.S. market.  


   11.     Discuss the positives and negatives of investing in a government agency issue rather than   a straight Treasury bond.    

12.     Discuss the difference between a foreign bond (e.g., a Samurai) and a Eurobond(e.g., a   Euroyen issue).


PROBLEMS
   1.     An   investor   in   the   28   percent   tax   bracket   is   trying   to   decide   which   of   two   bonds   to   purchase. One is a corporate bond carrying an 8 percent coupon and selling at par. The   other is a municipal bond with a 5.5 percent coupon, and it, too, sells at par. Assuming   all other relevant factors are equal, which bond should the investor select? 


  2.   What   would   be   the   initial   offering   price   for   the   following   bonds   (assume   semiannual   compounding)  ：     
 a. A 15-year zero coupon bond with a yield to maturity (YTM) of 12 percent.  
 b. A 20-year zero coupon bond with a YTM of 10 percent. 


3.  An 8.4 percent coupon bond issued by the state of Indiana sells for $1.000. What coupon   rate   on   a   corporate   bond selling   at   its   $1,000   par   value would produce   the   same   after-tax   return to the investor as the municipal bond if the investor is in     
    a. the 15 percent marginal tax bracket?     
    b. the 25 percent marginal tax bracket?   
      c. the 35 percent marginal tax bracket?   ETY=i/(1-t) 



   4. The Shamrock Corporation has just issued a $1,000 par value zero coupon bond with an 8   percent   yield   to   maturity,   due   to   mature   15   years   from   today   (assume   semiannual   compounding)  
   a. What is the market price of the bond?   
      b. If interest rates remain constant, what will be the price ot the bond in three years?    
     c. If interest rates rise to 10 percent, what will be the price of the bond in three years? 



5   Complete   the   information   requested   for   each   of   the   following   $1,000   face   value,   zero   coupon bonds, assuming semiannual compounding. 
  Bond      Maturity(Years)      Yield(Percent)Price($)
   A         20         12         ?
   B         ?         8         601  
 C         9         ?         350