Finc Discussion + quizzes **Zeek the Geek**

Jeren:

1. Copy the quotation of one bond that contains the price “Last Trade Price”. Present these quotations in your posting.

 

Issuer name: Conagra Foods Inc.

Symbol: CAG 23

Coupon: 3.2000%

Maturity date: 01/25/2023

Last Trade Price: 101.0100

Last Trade Time: 05/31/2016, 13:18:04

Change $: -5.2000

Bid Price: 102.0200

Bid Size: 100

Offer Price: 102.5200

Offer Size: 100

Spread: 5.0000

Volume Issue Type: Corporate Bonds

Listed/Traded: Traded on NYSE

 

 

1. Describe the information that you received from the quote of the bond. You have to explain each number and symbol that appears in the bond quotation.

 

Bid - current market price offered for the bond or any other securities.

Bid Size - the number of shares being offered for purchase at a specified bid price.

Ask – issuer’s or company’s asking price for the stocks (current price).

Ask Size - the amount of securities the company or issuer is offering to sell at the asking price.

High /Low -the highest and lowest prices that a stock has traded during the previous year.

Volume - indicates how many shares have changed hands during the trading day.

Open – it is the price at which the first share was traded within the trading day.

Ask Yield- it is the return investors would receive if they paid the asking price and held the bond to maturity.

Prev. Close- bond’s closing price on the preceding day of trading.

Prev. CL. DT – bond’s closing date on the previous date of trading.

Coupon Rate - the interest rate that a bond pays to a bondholder, annually or semi-annually.

Maturity Date- is the date on which the principal amount of a bond becomes due and it is paid back to the investor and interest payments stop.

Issue Type – description of the bond type which in this case is a corporate bond.

CUSIP- is a registered trademark of the American Bankers Association.

 

1. Assume that par value of the bond is $1,000. What was the last price of the bond in $$$ (listed in Last Trade Price)?

 

Last Trade Price $101.0100

 

1. Assume that par value of the bond is $1,000. Calculate annual coupon interest payments.

$1000*3.2000%= 32

 

1. Assume that par value of the bond is $1,000. Calculate current yield of the bond.

 

Current Yield = Annual Coupon /Price

Current Yield = 32/101.0100= 31.68%

 

1. Assume that par value of the bond is $1,000. Assume annual coupon payments. Calculate YTM of the bond using the last price (listed in Last Trade Price). (Round the number of years to the whole number). You should use Excel or financial calculator. Show your work.

 

Calculation using Excel

 

Nper. – 7

Pmt. – 1000 x 3.2000%

PV – 101.0100

Rate- 25.06%

 

1. Describe one major shortcoming for YTM and current yield.

 

Under YTM it is assumed that the bond would be held to maturity, and all the income can be reinvested at the same YTM rate.

The current yield, on the other hand, does not account for the gains or losses at maturity.  

 

1. How would the following affect the yield on newly issued bond? Please explain your answer.

1. The bonds are callable.

If the interest rate declines, callable bond can be redeemed by the issuer before its maturity.

 

1. The bonds are subordinated to the existing bond issue.

Bonds that are subordinated to the existing bonds issue have a higher yield because of the higher interest returns due to the increased risk of these type of bonds.

 

1. The bond rating is better or worse than the Moody’s Aa3 that IBM anticipates.

I did not understand this question.

Daria:

1.  IBM

ISSUER NAME - IBM CORP 3.625% 02/12/2024

SYMBOL - IBM24

COUPON - 3.6250%

MATURITY DATE - 02/12/2024

LAST TRADE PRICE - 101.7300

LAST TRADE TIME -08/27/2015 

CHANGE $ - 4.0000

BID PRICE -107.8300

BID SIZE - 100

OFFER PRICE- 106.9900

OFFER SIZE - 20

SPREAD - -8.4000

ISSUE TYPE - Corporate Bonds

LISTED / TRADED - Traded on NYSE

2. 

· Issuer Name: IBM CORP = The entity that sells the securities.

· Symbol: IBM24 = How this particular bond it listed in the NYSE.

· Coupon: 3.625% = The rate paid on the bond from the issue date until maturity.

· Maturity Date: 2/12/2024 = The date at which the bond will mature and the issuer (IBM Corp) redeems the bond.

· Last Trade Price: 101.73 =  The price of which the bond is trading. Par being 100. So this bond is trading above par value.

· Bid price : Current buying price in queue.

· Bid size : Volume of bonds at bid price.

· Offer price : Current selling price in queue.

· Offer size : Volume of bonds at offer price.

· Spread : Difference between bid and ask.

·

3.Assume that par value of the bond is $1,000. What was the last price of the bond in $$$ (listed in Last Trade Price)?

· Last Trade Price: 101.73

· ($1,000/100)*101.73 = $1,017.30

4.Assume that par value of the bond is $1,000. Calculate annual coupon interest payments.

· $1,000 x 3.625% = $36.25

5.Assume that par value of the bond is $1,000. Calculate current yield of the bond.

· Current yield = $36.25 / $1,017.30 = 56%

6.Assume that par value of the bond is $1,000. Assume annual coupon payments. Calculate YTM of the bond using the last price (listed in Last Trade Price). (Round the number of years to the whole number). Show your work.

· Coupon Payments = $36.25

· Nper: Dec 2, 2014 - Dec 12, 2024 (10yr)

· Pmt: 36.25

· PV: -1017.30

· FV: 1000

· Type: 0

· =RATE(10,36.25,-1017.3,1000,0) = 42%

7. Describe onemajor shortcoming for YTM and current yield.

· YTM makes the assumption that the bond will be held until its maturity date and that the entire income from the coupon can be reinvested at an equal rate.

· Current yield doesn't take into consideration things such as capital gains or losses for bonds that are purchased above or below par value.

8.How would the following affect the yield on newly issued bond? Please explain your answer.

· a) The bonds are callable: The Issuer has a right buy out bonds before the maturity date. This usually happens if rates are falling, it allows the issuer to refinance at a lower rate.

· b) The bonds are subordinated to the existing bond issue: It is more risky bonds, because they usually have a lower priority than other bonds. Because these bonds have a higher risk, they also give a higher yield in comparison with others.

· c) The bond rating is better or worse than the Moody's Aa3 that IBM anticipates: Because IBM is ranked higher, they also have lower returns because they are less risky bonds.

References:

· NYSE. IBM. Retrieved from https://www.nyse.com/listings_directory/bond