The Quotation Of One Bond That Contains the Price Last T
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). Offer 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 – 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 – 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 – a registered trademark of the American Bankers Association.
Assuming the par value of the bond is $1,000, the last trade price listed in the quotation is 101.0100. Therefore, the last price of the bond in dollars is calculated as: (Par Value / 100) * Last Trade Price = ($1,000 / 100) * 101.0100 = $1,010.10. The annual coupon interest payment is calculated by multiplying the par value by the coupon rate: $1,000 * 3.2000% = $32.
The current yield of the bond is determined by dividing the annual coupon by the current price: Current Yield = Annual Coupon / Price = $32 / $1,010.10 ≈ 3.17%. This measure indicates the income return on the bond relative to its current market price.
To compute the Yield to Maturity (YTM) of the bond, one can use a financial calculator or Excel. Using Excel's RATE function with parameters: number of periods (Nper) = 7 (assuming maturity in 7 years), periodic payment (Pmt) = $32, present value (PV) = -$1,010.10, future value (FV) = $1,000, and type = 0
(end of period), results in an approximate YTM of 3.10%. This rate reflects the total return an investor would earn if the bond is held to maturity, considering both coupon payments and any capital gains or losses.
One major shortcoming of YTM is its assumption that the bond will be held to maturity and that all coupon payments can be reinvested at the same yield, which may not be realistic. Current yield, on the other hand, does not account for capital gains or losses if the bond is purchased above or below par value, thus providing a more limited view of expected returns.
The yield on a newly issued bond can be affected by various factors such as call features, credit risk, and rating. Specifically, if the bonds are callable, declining interest rates increase the likelihood that issuers will redeem the bonds early to refinance at lower rates, which reduces the expected yield for investors. Subordinated bonds carry higher risks because in case of issuer default, they are paid after other more senior debt, resulting in higher yields. The bond rating directly influences yield; a better rating (e.g., higher than Moody’s Aa3) generally correlates with lower yields due to perceived lower risk, whereas a worse rating increases perceived risk and thus yields.
References
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