Business Math

Business Math

Gr 11

Chapter

Building Wealth Through Investments

Objectives

• Interpret the bond listings

• Calculate the price of bonds

• Solve for the current bond yield

Definition

Bond: a type of loan to the issuer to raise money for a company, state, or municipality. The investor or bondholder will be paid a specified rate of interest each year and will be paid the entire value of the bond at maturity.

Issuer: a company, state, or municipality that issues bonds to raise money.

Answer the questions by referring to the table

Open Ended

What are bonds?

Refer to table 15.3 to answer the given questions.

(a) What are the interest rate and the date of maturity for BAC.ICB?

(b) What is the rating for this bond provided by Fitch?

(c) What are the change and yield % for this bond issue?

Multiple Choice

From Table 15-3 find the interest rate and the date of maturity for Kraft Foods.

• 7.675% and Feb 2021

• 5.375% and Feb 2020

• 5.150% and Mar 2020

Example

Calculate the closing price of the BUD. ID bond.

From column 8, the closing price as a percent of face value was 104.526%.

Closing bond price = $1.000 * percent in column 8

= $1,045.26 = $1,000 (1.04526)

The closing bond price is $1,045.26

Open Ended

Calculate the closing price of the C.HRY bond using the table 15.-3

Multiple Choice

What was the closing price of the T.KM bond ?

• 10993.1

• 1099.31

• 109.931

Information

Investors in bonds, like investors in stocks, want to know the yield of their investments. In Table 15-3, the yield % column (10) provides a measure of how profitable the investment is for the life of the investment, often referred to as yield to maturity. Current bond yield compares annual earnings (interest) with the closing price of a bond. It is expressed as a percent of face value.

Calculation Method

1. Calculate the current price of a bond.

2. Locate the stated interest rate or coupon in column 3.

3. Multiply the stated interest rate by $1,000, the face value of the bond.

4. Divide the result by the current price of the bond.

Current yield = stated interest rate (as a decimal) * $1,000 current price of bond * 100%

Open Ended

Calculate the current bond yield for KFT.GX (Table 15-3).

Multiple Choice

Calculate the current bond yield for C.HRY

• 7.219

• 72.19%

• 7.219%

Open Ended

Give the summary in 60 seconds