I. TYPES OF BONDS (5 points: 1 item x 5 points)
In no more than five (5) sentences, discuss one (1) classification of bonds and cite an
example of how it meets the requirements of the players in the financial system.
Answer:
A corporate bond is a debt asset issued by a company and sold to investors. The corporation
receives the funds it requires and agrees to pay the lender a certain amount of interest, either
at a fixed or variable rate. To suit the investors’ needs, issuers must have collateral or highly
liquid treasury securities. For example, if a corporation invests in money markets before
issuing a bond, investors will likely find this appealing because the company has a liquid asset
that it may tap into in the event of an emergency.
II. YIELD TO MATURITY (10 points: 2 items x 5 points) Give what is asked in the problem.
Write your solutions in the space provided.
1. Christian Punzalan received an offer of a 10-year, 6% annual coupon, a P1,000 par
value bond at a price of P1,149.30. What is the rate that will make the future cash flow of
the bond equal to its current price?
Annual interest rate: I =V x Nominal Interest Rate I = P1,000 x 6% I = P60
Let: I = 60 V = P1,000 M = P1,149.30 n = 10
𝑌𝑇𝑀 = 60 + (1000 −1149.30
10 )
1000 +1149.30
