YTM will drop since the

company has more money to

pay the interest on
its bonds
YTM will drop since the
company has more money to
pay the interest on
its bonds
YTM will drop since the
company has more money to
pay the interest on
its bonds
3. A) When there is an increase in the issuing firm’s times-interest-earned ratio, the company
has now more money to meet its interest obligations and hence the risk to the bondholders'
decreases. Hence the Yield to maturity will also decrease. (risk and yield to maturity are
directly correlated)
B) A high debt to equity ratio means the company is aggressively financing its growth with
debt. Hence default risk of the bond issuing company will be high and the Yield to maturity
will increase.
C) Quick ratio indicates the company’s ability to instantly use its near-cash assets (that is,
assets that can be converted quickly to cash) to pay down its current liabilities. Hence higher
quick ratio means a lower risk of defaulting and the Yield to maturity will decrease

13. A zero-coupon bond means there is no coupon payment to be reinvested. In the equation,

Price of bond= coupon*annuity factor + par value*PV factor

Since coupon =0

Price of bond= Par value*PV factor

Price of bond = Par value*(1/(1+r) t)

Or Par value= Price of bond*(1+r)t

Hence the par value of the investment comes entirely from the principal of the bond and is
independent of the reinvestment rate of the coupon (because coupon itself is zero). This is why the
stated yield to maturity and realized compound yield to maturity are equal.

23.

Q. Newspaper article summary

Ans: Recession fears have driven large investments into 10-year government bonds in major Asian
markets such as Japan, South Korea, Singapore, Hong Kong, causing their bond yields to fall sharply.
However, investors are staying away from riskier markets like India and Indonesia and hence their
bond yields are up.

Source: https://www.cnbc.com/2019/08/15/bond-yields-are-tumbling-throughout-asia-pacific.html