1 - Consider the two bonds issued by Texas Utilities and Coastal Corporation. The two bonds are identical in many respects, have th same rating, however offering different yields. Which one of the two bonds you are likely to invest and why?

2 - It appeares that the law of one price (assets of the same risk class should offer same return) is violated. Can you offer reason(s) why?

SHORT ANSWER

Part 1
Please use the attachment to answer the following questions:
Q1: What is the price (PV) of caterpillar bond assuming the bond has 13 year to maturity all else remaining the same?
Q2: What is the annual coupon payment from the first Treasury bond with par value (FV) of $67 million all else remaing the same.
Q3: Consider The two bonds Texas Utilities and Coastal Corporation. Both bonds are identical with the same investment grade BBB rating, however, offering different yield. Which one of the bond you are likely to buy and why?

Part 2
1. Interest PaymentsDetermine the interest payment for the following three bonds: 5 ½ percent coupon corporate bond (paid semiannually), 5.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000,000 par value.)
2. Call PremiumA 6.25 percent corporate coupon bond is callable in 7 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
3. Bond QuotesConsider the following three bond quotes; a Treasury note quoted at 107:27, and a corporate bond quoted at 102.75, and a municipal bond quoted at 102.95. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $10,000, what is the price of these three bonds in dollars?
4. Compute Bond PriceCompute the price of a 6.5 percent coupon bond with 20 years left to maturity and a market interest rate of 7 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?
5. Yields of a BondA 3.75 percent coupon municipal bond has 17 years left to maturity and has a price quote of 102.80. The bond can be called in eight years. The call premium is one year of coupon payments. Compute and discuss the bond’s current yield, yield to maturity, taxable equivalent yield (for an investor in the 30 percent marginal tax bracket), and yield to call. (Assume interest payments are semiannual and a par value of $10,000.)

1 - Consider the two bonds issued by Texas Utilities and Coastal Co...