FI Assignment

On December 20, 1994 the Nippon Telegraph & Telephone Corporation (NTT) issued ¥1 billion of 10-year debe
¥100 per ¥100 of face value. The entire amount of borrowed principal would be repaid at maturity. Interest w
A. What was the yield to maturity of NTT’s debentures at the time of issuance? What woul
Q1 B. By 1996 yields on AAA yen debt maturing in 8 years had dropped to 3.0
Solution
b Face Value 100

Coupon Rate 4.75
Coupon Payment 4.75
No of periods 8
Rate 0.03
Present Value ₹ 112.28
Ms. Alumm is the portfolio manager for a large insurance company. She is considering
All of Patriot’s bonds have market prices that imply a yield to maturity of 8% “bond equivalent yield” (that is 4
value), which is the promised pa
• Bond A matures in five years and pays a 9% cou
$1,000 face value b
• Bond B matures in ten years, pays an 8% coupon y
is being offered a
Bond C is a zero-coupon bond that pays no explicit

of $1,000 per bond at matur
A. At what price should each b
As an alternative, Ms. Alumm has been invited to inv
a second firm, Nationaliste, S.A.2 Nationaliste bond
they promise an 8% coupon yield for 10 years,
semiannually. The Nationaliste bonds are priced a
$1,000 face val
B. What yield to maturity is implied by the Nationalis
8% “bond-equivalent yield” of the Patriot semian
which bond should Ms. Al
A.
Face Value 1000
Coupon Rate 0.045
Coupon Amount 45
Rate 0.04
No. of Periods 10
Present Value ₹ 1,040.55
B.
Face Value 1000
Coupon Rate 0.04
Coupon Amount 40
Rate 0.04
No. of Periods 20
Present Value ₹ 1,000.00
C.
Maturity Value 1000
No of Periods 20
Rate 0.04
Present Value 456.3869462
8%
Q3
A
Annual Payment Installment 25000
No of Periods 20
Loan Principal ₹ 228,213.64
Total Payments 500000

Total Interest Paid ₹ 271,786.36
Principal Paid in 1st year ₹ 4,460.77
Principal Paid in 20th Year 22935.779817

Interest Paid in 20th Year 2064.2201835
B
PV for first 5 years ₹ 97,241.28
PV for second ₹ 116,689.54
₹ 136,137.79
₹ 155,586.05
Effective annual rate for Pru-Johntower

Q4 A Life Insurance Company, 10%
Effective yield to maturity for Tom Paine
Mutual Life Insurance Company, 0.1016493357
B
ne Corporation (NTT) issued ¥1 billion of 10-year debentures due December 20, 2004. The debentures carried a 4 3/4% coupon. They w
wed principal would be repaid at maturity. Interest would be paid annually upon the anniversary date of the issuance (i.e., on Decemb
AAA credit rating.
NTT’s debentures at the time of issuance? What would it have been if the bonds were priced at 99 instead of 100 (i.e., at 99% of face va
AAA yen debt maturing in 8 years had dropped to 3.00%. Given this yield to maturity, at what price should the NTT debentures have b
ger for a large insurance company. She is considering investing $1 million to purchase some bonds of Patriot Enterprises, Inc.
d to maturity of 8% “bond equivalent yield” (that is 4% every 6-month period).1 Each Patriot bond is described here, based on a $1,000
value), which is the promised payment at maturity.
• Bond A matures in five years and pays a 9% coupon yield ($45 every 6 months on a
$1,000 face value bond).
• Bond B matures in ten years, pays an 8% coupon yield ($40 seminannual payments), and
is being offered at par.
Bond C is a zero-coupon bond that pays no explicit interest, but will pay the face amount
of $1,000 per bond at maturity in ten years.
A. At what price should each bond currently sell?
As an alternative, Ms. Alumm has been invited to invest $1 million in a 10-year Eurobond of
a second firm, Nationaliste, S.A.2 Nationaliste bonds are similar in risk to “Bond B” above:
they promise an 8% coupon yield for 10 years, but coupons are paid annually, not
semiannually. The Nationaliste bonds are priced at a 1% discount from par, or $990 per
$1,000 face value.
B. What yield to maturity is implied by the Nationaliste Eurobond? Compare this yield to the
8% “bond-equivalent yield” of the Patriot semiannual coupon bond (Bond B) above. In
which bond should Ms. Alumm invest?
Present Value of each cash flo
₹ 97,241.28
₹ 75,840.19
₹ 57,506.08
₹ 42,714.29
₹ 273,301.84
10.1649335710808
d a 4 3/4% coupon. They were priced at par, that is, they cost the investor
issuance (i.e., on December 20th of each year). The debentures carried a
100 (i.e., at 99% of face value)? at 101 instead of 100?

he NTT debentures have been selling?
t Enterprises, Inc.
ed here, based on a $1,000 face value (par

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On December 20, 1994 the Nippon Telegraph & Telephone Corporation (NTT) issued ¥1 billion of 10-year debe

b Face Value 100

Bond C is a zero-coupon bond that pays no explicit

Total Payments 500000

Principal Paid in 20th Year 22935.779817

Effective annual rate for Pru-Johntower

100 (i.e., at 99% of face value)? at 101 instead of 100?

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