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 Chapter 07 – Valuing Bonds

CHAPTER 7 – VALUING BONDS

questions

LG1 1. What does a call provision allow issuers to do, and why would they do it?

A call provision on a bond issue allows the issuer to pay off the bond debt early at a cost of the
principal plus any call premium. Most of the time when a bond issue is called, it is because
interest rates have substantially declined in the economy. The issuer calls the existing bonds
and issues new bonds at the lower interest rate. This reduces the interest payments the issuer
must pay each year.

LG2 2. List the differences between the new TIPS and traditional Treasury bonds.

Traditional Treasury bonds have a fixed principal and constant interest payments. Because the
principal and coupon rate are fixed, interest rate changes in the economy cause the market price
of the bonds to have large fluctuations. On the other hand, the principal of a TIPS increases with
the rate of inflation. Similar to a T-bond, the TIPS has a constant coupon rate. However, since
the principal of the TIPS increases over time, the interest payment also increases over time. This
inflation rate adjustment of a TIPS’ principal every six months reduces the amount of downward
price change in the price of the bond when interest rates increase.

LG2 3. Explain how mortgage-backed securities work.

A large amount of home mortgages are purchased and pooled together. The homeowners pay
interest and principal monthly on their mortgages. Bonds are issued from the pool of mortgages,
using the mortgages as collateral. The interest payments and bond principal payments for these
mortgage-backed securities (MBS) originate from the mortgage borrowers and flow through the
pool of mortgages. As the homeowners pay off their mortgages over time, the MBS are also paid.

LG3 4. Provide the definitions of a discount bond and a premium bond. Give examples.

A discount bond is simply a bond that is selling below its par value. It would be quoted at a price
that is less than 100 percent of par, like 99.05. A premium bond is a bond selling above its par
value. Its price will be quoted as over 100 percent of par value, like 101.15. A bond becomes a
discount bond when market interest rates rise above the bond’s coupon rate. A bond becomes a
premium bond when market interest rates fall below the bond’s coupon rate.

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 Chapter 07 – Valuing Bonds

LG4 5. Describe the differences in interest payments and bond price between a 5 percent coupon bond
and a zero coupon bond.

The 5 percent coupon bond pays annual interest of 5 percent of the bond’s par value. For a
$1,000 par value bond, this would be $50 per year. This interest might be paid in two payments
of $25 each. The price of the coupon bond tends to stay near its par value. The zero coupon bond
pays no interest payments. The bondholder earns a return from the increase of the bond’s market
price over time. The bond’s price is initially much lower than its par value. When the zero
coupon bond finally matures, the par value is paid.

LG5 6. All else equal, which bond’s price is more affected by a change in interest rates, a short-term
bond or a longer-term bond? Why?

All else equal, a long-term bond experiences larger price changes when interest rates change than
a short-term bond. A bond’s price is the present value of all its cash flows. Changes in the
discount rate (the interest rate) impact present values more for cash flows that are further out in
time.

LG5 7. All else equal, which bond’s price is more affected by a change in interest rates, a bond with a
large coupon or a small coupon? Why?

The price of the bond with the small coupon will be impacted more by a change in interest rates
than the price of the large coupon bond. For a small coupon bond, the cash flows are weighted
much more toward the maturity date because of the small interest payments. The large coupon
bond has high interest payments, many of which occur soon. These higher cash flows made
earlier dampen the impact of interest rate changes because those changes in the discount rate
impact the earlier cash flows to a lesser degree than the later cash flows.

LG5 8. Explain how a bond’s interest rate can change over time even if interest rates in the economy
do not change.

Because of the yield curve, there are different interest rates that apply to each time to maturity.
So, as a bond gets closer to its maturity date, different interest rates may apply to its discounting
even when interest rates in the economy have not changed.

LG6 9. Compare and contrast the advantages and disadvantages of the current yield computation
versus yield to maturity calculations.

The current yield computation is useful because it is a very simple one. It provides a quick and
easy assessment of what the bond offers the investor in return. But it measures only the return
from the interest payments. The full return to an investor also includes the capital gain or loss the
bond will experience if it is selling as a discount or premium bond. The yield to maturity
computation is more difficult, but it incorporates the full return the bond offers to investors.

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 Chapter 07 – Valuing Bonds

LG6 10. What is the yield to call and why is it important to a bond investor?

Many bonds do not survive until their maturity date because they get paid early through a call
provision. The yield to call is the yield that would be earned if the bond is purchased at today’s
price and held until it is called by the issuer. The computation incorporates the additional call
premium that is paid with the principal.

LG6 11. What is the purpose of computing the equivalent taxable yield of a municipal bond?

Municipal bonds offer a tax advantage for the bondholder that other kinds of bonds do not offer.
Thus, their yield to maturity is not directly comparable to that of other bonds. The equivalent
taxable yield (ETY) is an adjustment to the yield to make it comparable to taxable bonds. Bond
investors can use the ETY to assess which bond will earn them a higher after-tax return.

LG6 12. Explain why high income and wealthy people are more likely to buy a municipal bond than a
corporate bond.

Individual bondholders do not owe taxes on interest payments received from municipal bonds.
This tax advantage is more valuable to individuals who are in a higher marginal tax bracket.
Because wealthy individuals are usually in a higher tax bracket, this tax advantage is more
valuable to them.

LG7 13. Why does a Treasury bond offer a lower yield than a corporate bond with the same time to
maturity? Could a corporate bond with a different time to maturity offer a lower yield? Explain.

The Treasury bond has lower credit risk than the corporate bond. Given the risk/return
relationship, lower risk is associated with lower expected return. Thus, all else equal, a Treasury
bond will offer a lower yield to maturity than a corporate bond. However, if the yield curve
slopes upward, then shorter term to maturity bonds will require a smaller interest rate than longer
term bonds. So, it is possible that a short-term corporate bond would offer a lower yield than a
long-term Treasury bond.

LG7 14. Describe the difference between a bond issued as a high-yield bond and one that has become
a “fallen angel.”

Both of these bonds would be rated as BB or below. The bond referred to as a “fallen angel”
would have been issued by a firm that was a successful, financially stable firm but one that has
recently struggled. The bondholder would have purchased the bond when it was rated investment
grade (BBB or above), but now holds a “fallen angel”, or junk bond, due to a decline in the
issuer’s financial status. The bond issued as a high-yield, or junk, bond would

7-3
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Education.
 Chapter 07 – Valuing Bonds

have been issued after the firm’s financial condition had already deteriorated. The purchaser of
this bond bought the bond initially as a junk bond.

LG8 15. What is the difference in the trading volume between Treasury bonds and corporate bonds?
Give examples and/or evidence.

There is high trading volume in Treasury bonds and low trading volume in corporate bonds.

problems

basic problems

LG1 7-1 Interest Payments Determine the interest payment for the following three bonds: 3.5
percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note,
and a corporate zero coupon bond maturing in ten years. (Assume a $1,000 par value.)

3.5 percent coupon corporate bond (paid semiannually): 0.5 × 0.035 × $1,000 = $17.50
4.25 percent coupon Treasury note: 0.5 × 0.0425 × $1,000 = $21.25
Corporate zero coupon bond maturing in 10 years: 0.00 × $1,000 = $0

LG1 7-2 Interest Payments Determine the interest payment for the following three bonds: 4.5percent
coupon corporate bond (paid semiannually), 5.15 percent coupon Treasury note, and a corporate
zero coupon bond maturing in 15 years. (Assume a $1,000 par value.)

4.5 percent coupon corporate bond (paid semiannually): 0.5 × 0.045 × $1,000 = $22.50
5.15 percent coupon Treasury note: 0.5 × 0.0515× $1,000 = $25.75

Corporate zero coupon bond maturing in 10 years: 0.00 × $1,000 = $0

LG1 7-3 Time to Maturity A bond issued by Ford on May 15, 1997 is scheduled to mature on May
15, 2097. If today is November 16, 2014, what is this bond’s time to maturity?

May 15, 2097 minus November 16, 2014 = 82 years and 6 months

LG1 7-4 Time to Maturity A bond issued by IBM on December 1, 1996 is scheduled to mature on
December 1, 2096. If today is December 2, 2015, what is this bond’s time to maturity?

December 1, 2096 minus December 2, 2015 = 81 years

LG1 7-5 Call Premium A 6 percent corporate coupon bond is callable in five 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?

Principal + Call premium = $1,000 + 0.06 × $1,000 = $1,060

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 Chapter 07 – Valuing Bonds

LG1 7-6 Call Premium A 5.5 percent corporate coupon bond is callable in 10 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?

Principal + Call premium = $1,000 + 0.055 × $1,000 = $1,055

LG2 7-7 TIPS Interest and Par Value A 2.75 percent TIPS has an original reference CPI of 185.4.
If the current CPI is 210.7, what is the current interest payment and par value of the TIPS?

Par value = 210.7 / 185.4 × $1,000 = $1,136.46

Interest payment = 0.5 × 0.0275 × $1,136.46 = $15.63

LG2 7-8 TIPS Interest and Par Value A 3.125 percent TIPS has an original reference CPI of 180.5.
If the current CPI is 206.8, what is the current interest payment and par value of the TIPS?

Par value = 206.8 / 180.5 × $1,000 = $1,145.71

Interest payment = 0.5 × 0.03125 × $1,145.71 = $17.90

LG3 7-9 Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 97:27,
and a corporate bond quoted at 103.25, and a municipal bond quoted at 101.90. If the Treasury
and corporate bonds have a par value of $1,000 and the municipal bond has a par value of
$5,000, what is the price of these three bonds in dollars?

Treasury note at 97:27: (97 + 27/32)% × $1,000 = 0.9784375 × $1,000 = $978.44

Corporate bond at 103.25: 103.25% × $1,000 = 1.0325 × $1,000 = $1,032.50
Municipal bond at 101.90: 101.90% × $5,000 = 1.019 × $5,000 = $5,095.00

LG3 7-10 Bond Quotes Consider the following three bond quotes; a Treasury bond quoted at 106:14,
a corporate bond quoted at 96.55, and a municipal bond quoted at 100.95. If the Treasury and
corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000,
what is the price of these three bonds in dollars?

Treasury note at 106:14: (106 + 14/32)% × $1,000 = 1.064375 × $1,000 = $1,064.38

Corporate bond at 96.55: 96.55% × $1,000 = 0.9655 × $1,000 = $965.50
Municipal bond at 100.95: 100.95% × $5,000 = 1.0095 × $5,000 = $5,047.50

LG4 7-11 Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 20
years if the market interest rate is 3.8 percent.

Use semiannual compounding:

7-5
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 Chapter 07 – Valuing Bonds

FVN $1,000
PV = = = $471.01
(1 + i )N  .038 
40

1 + 
 2 
Or N=40, I=1.9, PMT=0, FV=−1000, CPT PV == 471.01

LG4 7-12 Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 15
years if the market interest rate is 5.75 percent.

Use semiannual compounding:

FVN $1,000
PV = = = $427.27
(1 + i )  .0575 30
N

1 + 
 2 
Or N=30, I=2.875, PMT=0, FV=−1000, CPT PV == 427.27

LG6 7-13 Current Yield What is the current yield of a 3.8 percent coupon corporate bond quoted at a
price of 102.08?

3.8% / 102.08% = 0.0372 = 3.72%

LG6 7-14 Current Yield What is the current yield of a 5.2 percent coupon corporate bond quoted at a
price of 96.78?

5.2% / 96.78% = 0.05373 = 5.37%

LG6 7-15 Taxable Equivalent Yield What is the taxable equivalent yield on a municipal bond with a
yield to maturity of 3.5 percent for an investor in the 33 percent marginal tax bracket?

Use equation 7.4:

Muni yield 3.5%

Equivalent taxable yield = = = 5.22%
1-Tax rate 1 − 0.33

LG6 7-16 Taxable Equivalent Yield What is the taxable equivalent yield on a municipal bond with a
yield to maturity of 2.9 percent for an investor in the 28 percent marginal tax bracket?

Use equation 7.4:

Muni yield 2.9%

Equivalent taxable yield = = = 4.03%
1-Tax rate 1 − 0.28

LG7 7-17 Credit Risk and Yield Rank from highest credit risk to lowest risk the following bonds,
with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55
percent, IBM bond with yield of 7.49 percent, Trump Casino bond with yield of 8.76 percent,
and Banc One bond with a yield of 5.99 percent.
7-6
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 Chapter 07 – Valuing Bonds

Trump Casino bond with yield of 8.76 percent

IBM bond with yield of 7.49 percent
Banc One bond with yield of 5.99 percent
Treasury bond with yield of 5.55 percent

LG7 7-18 Credit Risk and Yield Rank the following bonds in order from lowest credit risk to highest
risk, all with the same time to maturity, by their yield to maturity: Treasury bond with yield of
4.65 percent, United Airline bond with yield of 9.07 percent, Bank of America bond with a yield
of 6.25 percent, and Hewlett/Packard bond with yield of 6.78 percent.

Treasury bond with yield of 4.65 percent

Bank of America bond with yield of 6.25 percent
Hewlett/Packard bond with yield of 6.78 percent
United Airline bond with yield of 9.07 percent

intermediate problems

LG2 7-19 TIPS Capital Return Consider a 3.5 percent TIPS with an issue CPI reference of 185.6. At
the beginning of this year, the CPI was 193.5 and was at 199.6 at the end of the year. What was
the capital gain of the TIPS in dollars and in percentage terms?

Gain = End of year value – Beginning of year value =

199.6 / 185.6 × $1,000 − 193.5 / 185.6 × $1,000 = $1,075.43 − $1,042.56 = $32.87
As a percentage, the gain was = $32.87 / $1,042.56 = 3.15%

LG2 7-20 TIPS Capital Return Consider a 2.25 percent TIPS with an issue CPI reference of 187.2.
At the beginning of this year, the CPI was 197.1 and was at 203.8 at the end of the year. What
was the capital gain of the TIPS in dollars and in percentage terms?

Gain = End of year value – Beginning of year value =

203.8 / 187.2 × $1,000 − 197.1 / 187.2 × $1,000 = $1,088.68 − $1,052.88 = $35.80
As a percentage, the gain was = $35.80 / $1,052.88 = 3.40%

LG4 7-21 Compute Bond Price Compute the price of a 3.8 percent coupon bond with 15 years left to
maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is
this a discount or premium bond?

 1 
1 − (1 + 0.034 )30  $1,000
Bond Price = $19.00   + = $353 .869 + $366 .762 = $720 .63
  (1 + 0.034 )
30
0.034
 
or TVM calculator: N = 30, I = 3.4, PMT = 19.00, FV = 1000; CPT PV = -720.63
Since the bond’s price is less than $1,000, it is a discount bond.

7-7
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 Chapter 07 – Valuing Bonds

LG4 7-22 Compute Bond Price Compute the price of a 5.6 percent coupon bond with 10 years left to
maturity and a market interest rate of 7.0 percent. (Assume interest payments are semiannual.) Is
this a discount or premium bond?

 1 
1 − (1 + 0.035)20  $1,000
Bond Price = $28.00   + = $397.95 + $502.56 = $900.51
  (1 + 0.035)
20
0.035
 
 

or TVM calculator: N = 20, I = 3.5, PMT = 28, FV = 1000; CPT PV = -900.51

Since the bond’s price is less than $1,000, it is a discount bond.

LG4 7-23 Compute Bond Price Calculate the price of a 5.2 percent coupon bond with 18 years left to
maturity and a market interest rate of 4.6 percent. (Assume interest payments are semiannual.) Is
this a discount or premium bond?

 1 
1 − (1 + 0.023)36  1,000
Bond Price = $26.00   + = $631.87 + $441.04 = $1,072.91
  (1 + 0.023)
36
0.023
 
 
or TVM calculator: N = 36, I = 2.3, PMT = 26, FV = 1000; CPT PV = -1,072.91
Since the bond’s price is greater than $1,000, it is a premium bond.

LG4 7-24 Compute Bond Price Calculate the price of a 5.7 percent coupon bond with 22 years left to
maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) Is
this a discount or premium bond?

 1 
1 − (1 + 0.0325 )44  $1,000
Bond Price = $28.50   + = $662 .24 + $244 .81 = $907 .05
  (1 + 0.0325 )
44
0.0325
 

or TVM calculator: N = 44, I = 3.25, PMT = 28.50, FV = 1000; CPT PV = -907.05

Since the bond’s price is less than $1,000, it is a discount bond.

LG5 7-25 Bond Prices and Interest Rate Changes A 5.75 percent coupon bond with 10 years left to
maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield
to maturity will be 6.0 percent. What is the change in price the bond will experience in dollars?

Compute the current bond price:

 1 
1 − (1 + 0.0325)20  $1,000
Bond Price = $28.75   + = $418.01 + $527.47 = $945.48
  (1 + 0.0325)
20
0.0325
 
 

7-8
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 Chapter 07 – Valuing Bonds

or TVM calculator: N = 20, I = 3.25, PMT = 28.75, FV = 1000; CPT PV = -945.48

Now compute the price in one year:

 1 
1 − (1 + 0.029 )18  $1,000
Bond Price = $28.75   + = $398 .777 + $597 .755 = $996 .53
  (1 + 0.029 )
18
0.029
 

or TVM calculator: N = 18, I = 3.0 PMT = 28.75, FV = 1000; CPT PV = -$982.81

So, the dollar change in price is:

$996.53 − $945.48 = $37.33

LG5 7-26 Bond Prices and Interest Rate Changes A 6.5 percent coupon bond with 14 years left to
maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield
to maturity will be 6.8 percent. What is the change in price the bond will experience in dollars?

Compute the current bond price:

 1 
1 − (1 + 0.036)28  $1,000
Bond Price = $32.50   + = $567.42 + $371.47 = $938.89
  (1 + 0.036)
28
0.036
 
 

or TVM calculator: N = 28, I = 3.6, PMT = 32.50, FV = 1000; CPT PV = -938.89

Now compute the price in one year:

 1 
1 − (1 + 0.034)26  $1,000
Bond Price = $32.50   + = $555.14 + $419.24 = $974.38
  (1 + 0.034)
26
0.034
 
 

or TVM calculator: N = 26, I = 3.4, PMT = 32.50, FV = 1000; CPT PV = -974.38

So, the dollar change in price is:

$974.38 − $938.89 = $35.49

LG6 7-27 Yield to Maturity A 5.65 percent coupon bond with 18 years left to maturity is offered for
sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are
semiannual.)

TVM calculator: N = 36, PV = -1,035.25, PMT = 28.25, FV = 1000; CPT I = 2.671% YTM =
2.671% × 2 = 5.34%

7-9
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 Chapter 07 – Valuing Bonds

LG6 7-28 Yield to Maturity A 4.30 percent coupon bond with 14 years left to maturity is offered for
sale at $943.22. What yield to maturity is the bond offering? (Assume interest payments are
semiannual.)

TVM calculator: N = 28, PV = -943.22, PMT = 21.5, FV = 1000; CPT I = 2.432% YTM =
2.432% × 2 = 4.86%

LG6 7-29 Yield to Call A 6.75 percent coupon bond with 26 years left to maturity can be called in six
years. The call premium is one year of coupon payments. It is offered for sale at $1,135.25.
What is the yield to call of the bond? (Assume interest payments are semiannual.)

TVM calculator: N = 12, PV = -1,135.25, PMT = 33.75, FV = 1067.50; CPT I = 2.541%

YTC = 2.541% × 2 = 5.08%

LG6 7-30 Yield to Call A 5.25 percent coupon bond with 14 years left to maturity can be called in
four years. The call premium is one year of coupon payments. It is offered for sale at $1,075.50.
What is the yield to call of the bond? (Assume interest payments are semiannual.)

TVM calculator: N = 8, PV = -1,075.50, PMT = 26.25, FV = 1,052.50; CPT I = 2.193% YTC =

2.193% × 2 = 4.39%

LG6 7-31 Comparing Bond Yields A client in the 39 percent marginal tax bracket is comparing a
municipal bond that offers a 4.5 percent yield to maturity and a similar-risk corporate bond that
offers a 6.45 percent yield. Which bond will give the client more profit after taxes?

First determine the ETY:

Muni yield 4.5%

Equivalent taxable yield = = = 7.38%
1-Tax rate 1 − 0.39

Since 7.38 percent is greater than 6.45 percent, the client should take the municipal bond.

LG6 7-32 Comparing Bond Yields A client in the 28 percent marginal tax bracket is comparing a
municipal bond that offers a 4.5 percent yield to maturity and a similar-risk corporate bond that
offers a 6.45 percent yield. Which bond will give the client more profit after taxes?

First determine the ETY:

Muni yield 4.5%

Equivalent taxable yield = = = 6.25%
1-Tax rate 1 − 0.28

Since 6.25 percent is less than 6.45 percent, the client should take the corporate bond.

advanced problems

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 Chapter 07 – Valuing Bonds

LG2 7-33 TIPS Total Return Reconsider the 3.5 percent TIPS discussed in problem 7-19. It was
issued with CPI reference of 185.6. The bond is purchased at the beginning of the year (after the
interest payment), when the CPI was 193.5. For the interest payment in the middle of the year,
the CPI was 195.1. Now, at the end of the year, the CPI is 199.6 and the interest payment has
been made. What is the total return of the TIPS in dollars and in percentage terms for the year?

Capital gain = End of year value – Beginning of year value =

199.6 / 185.6 × $1,000 – 193.5 / 185.6 × $1,000 = $1,075.43 − $1,042.56 = $32.87
The mid-year interest payment was: 0.5 × 0.035 × 195.1 / 185.6 × $1,000 = $18.40
The end-of-year interest payment was: 0.5 × 0.035 × 199.6 / 185.6 × $1,000 = $18.82
Total dollar return = $32.87 + $18.40 + $18.82 = $70.09
As a percentage, the return was = $70.09 / $1,042.56 = 6.72%

LG2 7-34 TIPS Total Return Reconsider the 2.25 percent TIPS discussed in problem 7-20. It was
issued with CPI reference of 187.2. The bond is purchased at the beginning of the year (after the
interest payment), when the CPI was 197.1. For the interest payment in the middle of the year,
the CPI was 200.1. Now, at the end of the year, the CPI is 203.8 and the interest payment has
been made. What is the total return of the TIPS in dollars and in percentage terms for the year?

Gain = End of year value – Beginning of year value =

203.8 / 187.2 × $1,000 − 197.1 / 187.2 × $1,000 = $1,088.68 − $1,052.88 = $35.80
The mid-year interest payment was: 0.5 × 0.0225× 200.1 / 187.2 × $1,000 = $12.03
The end-of-year interest payment was: 0.5 × 0.0225× 203.8 / 187.2 × $1,000 = $12.25
Total dollar return = $35.80 + $12.03 + $12.25 = $60.08
As a percentage, the return was = $60.08 / $1,052.88 = 5.71%

LG5 7-35 Bond Prices and Interest Rate Changes A 6.25 percent coupon bond with 22 years left to
maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield
to maturity will be 6.0 percent. If this occurs, what would be the total return of the bond in
dollars and percent? (Assume interest payments are semiannual.)

Compute the current bond price:

 1 
1 − (1 + 0.0275)44  $1,000
Bond Price = $31.25   + = $791.92 + $303.11 = $1,095.03
  (1 + 0.0275)
44
0.0275
 
 

or TVM calculator: N = 44, I = 2.75, PMT = 31.25, FV = 1,000; CPT PV = -1,095.03

Now compute the price in one year:

 1 
1 − (1 + 0.03)42  $1,000
Bond Price = $31.25   + = $740.67 + $288.96 = $1,029.63
  (1 + 0.03)
42
0.03
 
 

7-11
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Education.
 Chapter 07 – Valuing Bonds

or TVM calculator: N = 42, I = 3.0, PMT = 31.25, FV = 1,000; CPT PV = -1,029.63

Total return = Dollar change in price + Interest payments:

$1,029.63 − $1,095.03 + $62.50 = -$2.90
The percentage return is: -$2.90 / $1,095.03 = -0.26%

LG5 7-36 Bond Prices and Interest Rate Changes A 7.5 percent coupon bond with 13 years left to
maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield
to maturity will be 7.0 percent. If this occurs, what would be the total return of the bond in
dollars and percentage terms? (Assume interest payments are semiannual.)

Compute the current bond price:

 1 
1 − (1 + 0.03125)26  $1,000
Bond Price = $37.50   + = $660.84 + $449.30 = $1,110.14
  (1 + 0.03125)
26
0.03125
 
 

or TVM calculator: N = 26, I = 3.125, PMT = 37.50, FV = 1000; CPT PV = -1,110.14

Now compute the price in one year:

 1 
1 − (1 + 0.035)24  $1,000
Bond Price = $37.50   + = $602.19 + $437.96 = $1,040.15
  (1 + 0.035)
24
0.035
 
 

or TVM calculator: N = 24, I = 3.5, PMT = 37.50, FV = 1000; CPT PV = -1,040.15

Total return = Dollar change in price + Interest payments:

$1,040.15 − $1,110.14 + $75.00 = $5.01

The percentage return is: $5.01 / $1,110.14 = 0.45%

LG6 7-37 Yields of a Bond A 2.50 percent coupon municipal bond has 12 years left to maturity and
has a price quote of 98.45. The bond can be called in four 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 35 percent marginal tax bracket), and yield to call.
(Assume interest payments are semiannual and a par value of $5,000.)

Current yield = (0.025 × $5,000) / (0.9845 × $5,000) = 2.50% / 98.45% = 2.54%

TVM calculator: N = 24, PV = -4,922.50, PMT = 62.50, FV = 5000; CPT I = 1.3258%

YTM = 1.3258% × 2 = 2.65%

7-12
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Education.
 Chapter 07 – Valuing Bonds

Muni yield 2.65%

Equivalent taxable yield = = = 4.08%
1-Tax rate 1 − 0.35

TVM calculator: N = 8, PV = -4,922.50, PMT = 62.50, FV = 5125; CPT I = 1.753%

YTC = 1.753% × 2 = 3.51%
The current yield is higher than the coupon rate because this is currently a discount bond. This is
also shown by the YTM, which is greater than the coupon rate. The YTC is comparatively high,
but it is currently unlikely that the bond will be called early since interest rates have risen.

LG6 7-38 Yields of a Bond A 3.85 percent coupon municipal bond has 18 years left to maturity and
has a price quote of 103.20. 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 35 percent marginal tax bracket), and yield to call.
(Assume interest payments are semiannual and a par value of $5,000.)

Current yield = (0.0385 × $5,000) / (1.0320 × $5,000) = 3.85% / 103.20% = 3.73%

TVM calculator: N = 36, PV = -5,160, PMT = 96.25, FV = 5000; CPT I = 1.803%
YTM = 1.803% × 2 = 3.61%

Muni yield 3.61%

Equivalent taxable yield = = = 5.55%
1-Tax rate 1 − 0.35

TVM calculator: N = 16, PV = -5,160, PMT = 96.25, FV = 5192.50; CPT I = 1.90%

YTC = 1.90% × 2 = 3.80%

The current yield is lower than the coupon rate because this is currently a premium bond. This is
also shown by the YTM , which is lower than the coupon rate. The YTC is comparatively high,
but it is currently unlikely that the bond will be called early since interest rates are only a little
lower than the coupon rate and the call premium would have to be paid.

LG7 7-39 Bond Ratings and Prices A corporate bond with a 6.5 percent coupon has 15 years left to
maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has
recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The
new appropriate discount rate will be 8.5 percent. What will be the change in the bond’s price in
dollars and percentage terms? (Assume interest payments are semiannual.)

Compute the current bond price:

 1 
1 − (1 + 0.036)30  $1,000
Bond price = $32.50   + = $590.3223 + $346.1046 = $936.43
  (1 + 0.036)
30
0.036
 
 
or TVM calculator: N = 30, I = 3.6, PMT = 32.50, FV = 1000; CPT PV = -936.43

Now compute the price after the rating change:

7-13
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Education.
 Chapter 07 – Valuing Bonds

 1 
1 − (1 + 0.0425)30  $1,000
Bond price = $32.50   + = $545.32 + $286.89 = $832.21
  (1 + 0.0425)
30
0.0425
 
 

or TVM calculator: N = 30, I = 4.25, PMT = 32.50, FV = 1000; CPT PV = -832.21

So, the dollar change in price is:

$832.21 − $936.43 = -$104.22
The percentage return is: -$104.22 / $936.43 = -11.13%

LG7 7-40 Bond Ratings and Prices A corporate bond with a 6.75 percent coupon has 10 years left
to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm has
recently become more financially stable and the rating agency is upgrading the bonds to BBB.
The new appropriate discount rate will be 7.1 percent. What will be the change in the bond’s
price in dollars and percentage terms? (Assume interest payments are semiannual.)

Compute the current bond price:

 1 
1 − (1 + 0.041)20  $1,000
Bond price = $33.75   + = $454.64 + $447.70 = $902.34
  (1 + 0.041)
20
0.041
 
 

or TVM calculator: N = 20, I = 4.1, PMT = 33.75, FV = 1000; CPT PV = -902.34

Now compute the price after the rating change:

 1 
1 − (1 + 0.0355)20  $1,000
Bond price = $33.75   + = $477.51 + $497.73 = $975.24
  (1 + 0.0355)
20
0.0355
 
 
or TVM calculator: N = 20, I = 3.55 PMT = 33.75, FV = 1000; CPT PV = -975.24

So, the dollar change in price is:

$975.24 − $902.34 = $72.90
The percentage return is: $72.90 / $902.34 = 8.08%

7-41 Spreadsheet Problem Say that in June of 2014, a company issued bonds that are
scheduled to mature in June of 2017. The coupon rate is 5.75 percent and is paid semiannually.
The bond issue was rated AAA.
a. Build a spreadsheet that shows how much money the firm pays for each interest rate payment
and when those payments will occur if the bond issue sells 50,000 bonds.
b. If the bond issue rating would have been BBB, then the coupon rate would have been 6.30
percent. Show the interest payments with this rating. Explain why bond ratings are important to
firms issuing capital debt.

7-14
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Education.
Chapter 07 – Valuing Bonds

c. Consider that interest rates in the economy increased in the first half of 2012. If the firm
would have issued the bonds in January of 2012, then the coupon rate would have only been 5.40
percent. How much extra money per year is the firm paying because it issued the bonds in June
instead of January?

The spreadsheet might look like:

a. b. c.
Coupon Rate= 5.75% 6.30% 5.40%
Par Value = $1,000 $1,000 $1,000
Number of Bonds = 50,000 50,000 50,000

Interest payments Interest payments Interest payments

Jun-12 $ 0 $ 0 $1,350,000
Dec-12 1,350,000
Jun-13 1,350,000
Dec-13 1,350,000
Jun-14 1,350,000
Dec-14 1,437,500 1,575,000 1,350,000
Jun-15 1,437,500 1,575,000 1,350,000
Dec-15 1,437,500 1,575,000 1,350,000
Jun-16 1,437,500 1,575,000 1,350,000
Dec 16 1,437,500 1,575,000 1,350,000
June 17 1,437,500 1,575,000 1,350,000
1

B. The better the bond rating, the lower the interest rate a firm will have to pay. In this example,
the firm saves $275,000 each year in interest payments with the higher bond rating.

C. The firm is paying $175,000 per year more in interest because it issued its bonds after the
rates increased.

research it!
Bond Information Online

Information on the bond market is widely available in papers like The Wall Street Journal and
Barron’s. Bond information can also be found online at financial websites like
finance.yahoo.com and http://www.finra.org. The bond credit rating agencies also
maintainwebsites with their own bond market news.
You can follow the bond market easily at places like Yahoo! Finance . Click on the Bond
link in the menu to go to their Bond Center. Bond yields for various maturity Treasury securities
are shown for today and for previous days. The Bond Composite Rates link shows similar
comparisons for municipal and corporate bonds too.
Bond calculators are also available for free on the Web. Compare a bond price result from
your calculator or the price equation with the online bond calculator result at Investopedia.
(www.investopedia.com/calculator/BondPrice.aspx)

7-15
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Education.
Chapter 07 – Valuing Bonds

SOLUTION: All answers will be different. Here is an example answer:

An example done on the website…

 1 
1 − (1 + 0.02)6  $1,000
Bond price = $17.50   + = $98.03 + $887.97 = $986.00
  (1 + 0.02)
6
0.02
 
 

or TVM calculator: N = 6, I = 2, PMT = 17.50, FV = 1000; CPT PV = -986.00

All computations are the same.

integrated mini-case: Corporate Bond Credit Risk Changes and Bond Prices

Land’o’Toys is a profitable, medium-sized, retail company. Several years ago, it issued a 6.5
percent coupon bond, which pays interest semiannually. The bond will mature in 10 years and is
currently priced in the market as $1,037.19. The average yields to maturity for 10-year corporate
bonds are reported in the following table by bond rating.

Bond Rating Yield (%) Bond Rating Yield (%)

AAA 5.4 BB 7.3
AA 5.7 B 8.2
A 6.0 CCC 9.2
BBB 6.5 CC 10.5
C 12.0
D 14.5

Periodically, one company will purchase another by buying all of the target firm’s stock. The
bonds of the target firm continue to exist. The debt obligation is assumed by the new firm. The
credit risk of the bonds often changes because of this type of an event.
7-16
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Education.
 Chapter 07 – Valuing Bonds

Suppose that the firm Treasure Toys makes an announcement that they are purchasing
Land’o’Toys. Due to Treasure Toy’s projected financial structure after the purchase, Standard &
Poor’s states that the bond rating for Land’o’Toys bonds will change to BB.

a. Compute the yield to maturity of Land’o’Toys bonds before the purchase announcement
and use it to determine the likely bond rating.
b. Assume the bond’s price changes to reflect the new credit rating. What is the new price?
Did the price increase or decrease?
c. What is the dollar change and percentage change in the bond price?
d. How do the bond investors feel about the announcement?

SOLUTION:
a. TVM calculator: N = 20, PV = -1,037.19, PMT = 32.50, FV = 1000 CPT I = 3.00%
YTM = 3.00% × 2 = 6.00%
This bond is likely rated as an “A.”
b. The new YTM will likely be 7.3 percent annually, so the price will change to:
TVM calculator: N = 20, I = 3.65, PMT = 32.50, FV = 1000; CPT PV = -943.91
The price decreased because the bond got riskier.
c. The price change would be $943.91 − $1,037.19 = -$93.28
The change as a percentage would be -$93.28 / $1,037.19 = -8.99%
d. In a firm buyout, the stockholders of the target firm generally earn a nice profit. However, the
bond holders of the target firm can be unhappy if the new combined firm has a worse bond
rating, like in this case.

7-17
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Another random document with
no related content on Scribd:
mutton-pies and “Stuckling.” This latter is a production which, I am
happy to say, is peculiar to Winchester, and fortunately only to be
found there during two days in Election week. In external
appearance and in section it is similar to a mince pie, and in taste it
is something like one that has been soaked in vinegar, and then kept
till it is mouldy. It is made of chopped beef, currants, suet, apples,
and carraway seeds. I have seldom seen anybody taste it a second
time. These rations were, however, scorned by the boys; and as half
the good things from the centre table were handed over to them,
they made up for any past deficiencies in the way of dinner, in a
manner that must have been surprising to the lookers on. Venison
pasty, currant-pies, pea-soup, ham, ducks, cucumber, fish, &c.,
disappeared as if by magic, washed down by libations of “Huff,” (very
strong ale.) The gospel was read by the Bible Clerk for the week
after the first course, and at the conclusion the beautiful grace was
sung by the boys, with the help of the cathedral choristers and
singing men. On Friday the boys had no dinner in hall, where the
Dons had it all to themselves, and afterwards adjourned for wine and
dessert to the Warden’s Gallery, where they complimented each
other in the usual after-dinner style.
All through the week the Fags revelled in cricket on their own
account, and strawberries and cream and ices were supplied in a
continual stream by the Oxford men and old Wykehamists, who
resorted to Meads in considerable numbers. One can get too much
of a good thing; for on one of these days I came up melting with heat
from Meads, and going into chambers washed my hands and face,
and consumed a quantity of ice. The next morning when I awoke I
found my pillow saturated with blood, which had flowed from my
nose during my sleep,—this was the only time in my life that I have
ever had a spontaneous effusion from that organ. The morning
following, when I awoke, I felt a strange irritation over my face and
hands, with some symptoms of eruption. I sent for a doctor, who
informed me I had the smallpox. I denied the soft impeachment, as I
felt perfectly well. I was sent home, and my face and hands soon
became one mass of pimples, and, after about a fortnight, all the
skin peeled off, and I recovered with the loss of my complexion,
which exchanged its former peculiar delicate hue for that of boiled
veal, which it has ever since retained.
When a boy was going to leave the School for good, he had to
send in his resignation to the Warden, written on a slip of paper. It
ran as follows:—

“Ego Robertus Jones omne jus quod habeo aut unquam habui in hoc Collegio
Beatæ Mariæ Winton prope Winton, ætate cogente (or parentibus volentibus)
libenter resigno.”

The last Friday evening of the half year there was a grand
celebration of “Domum” in school, which was adorned with branches
and banners. A military band was engaged, and “Domum” was sung
by all the company till they were hoarse. It was an exceedingly gay
and animated affair. Numbers of ladies graced the school with their
presence, and crowds of old Wykehamists, fancying themselves
boys once more, wandered about among the old familiar scenes.
From school the company adjourned to Meads, and then to the
Chamber quadrangle, at each place singing “Domum” louder than
before, till at last the power failed, and the ladies, visitors, and
Superannuates went to recruit their energies for a brief period before
going to the “Domum ball” at St John’s rooms, of which the
Superannuates were stewards, and which was generally kept up
with tremendous energy far into the small hours. The boys’ last
breakfast at the George or White Hart formed an appropriate supper
for the most enthusiastic dancers.
After chapel on the last morning all the boys, with the second
master at their head, marched round the quadrangle, singing the
beautiful Latin hymn commencing with Jam lucis orto sidere; they
then adjourned to Sixth, where the journey money was distributed,
and then went off rejoicing to the “Last breakfast.”
There was generally an exciting contest between the adherents of
the George and White Hart hotels, as to which should provide this
entertainment. The former generally had the call; but one year, when
some of us had made a particularly good feed at the latter
establishment, we got up a little private canvass before the usual
time, and to the great disgust of the Præfects, who were all
Georgists, we carried the day triumphantly. The expense was
defrayed by the boys subscribing the last three “Batlings,” (i.e., the
weekly shilling allowed each boy.) This was rather an illusory coin,
for we seldom actually fingered it, as some one of the College
servants generally had a kind of prescriptive right to a benefit; and
whenever Saturday arrived, Præfect of Hall’s valet was sure to come
round to ask the boys if they would give their batlings to Rat
Williams, or Dungy, or Purver, or Long John, or some other equally
deserving individual. The last breakfast was a decidedly jolly and a
very good repast,—in fact, it was a regular dinner, with tea and
coffee instead of wine. Then the inn-yard was full of postchaises and
four-wheelers, with a four-horse coach or two drawn up outside; and
the exulting Junior slipping a shilling into the expectant hand of the
obsequious “Yessah,” stepped proudly into his vehicle, and soon
forgot all the troubles of his first half in delightful anticipation of
coming festivities.
 CHAPTER XV.
CONCLUSION.

If I could only flatter myself that any of my readers have felt one
quarter of the pleasure in reading my little book that I have derived
from writing it, I should be more than satisfied. On looking it over,
however, I have some misgivings; I fear that those who know not
Winchester may think the subject too trivial for illustration, and that
Wykehamists may regret that so good a subject has been so
indifferently handled.
It has surprised me to find how many occurrences, names, words,
and faces that for years had lain dormant in my mind, started up
again in my memory, as I sauntered through Chambers, School, and
Meads; how strange was the sensation to be looked at as a stranger,
in a place every stone of which was as familiar to me, nay, I may say
more familiar to me, than any other spot in the world. The boys, their
names, their dress, their games, their quaint language, (of which I
have endeavoured to draw up a glossary,) all seem unchanged; and
even I fancied that I myself was once more a Junior, till mechanically
snatching at a ball rolling past me, my vertebræ most disagreeably
reminded me what o’clock it was.
It has often occurred to me how very remarkably the relative
positions of boys change in after-life; and if all those who were my
school-fellows could be collected together how differently we should
regard each other. Such a gathering would be of course impossible,
even if death had not cut short the career of very many; scattered
through every portion of the globe, working hard in their different
professions, or vegetating in luxurious ease or careless indolence,
how contrary to all our expectations has many a one turned out;
some, neglected and despised while at school, have risen to
eminence, while others, whose early youth seemed to give bright
promise, have never raised their heads above the common throng.
This change is even more remarkable in the physical appearance of
individuals than in their moral character. I am myself, in some
respect, an example of this. I left school when I was seventeen, if
anything rather smaller than other boys of my age; some years after
I was at a ball at Glasgow, when I saw a little officer whose face was
perfectly familiar to me, and I perceived that mine was not strange to
him, so we soon fraternized; I found that my friend was Long Eves,
as we used to call him from his being so tall. I am no giant, and I now
found that I had overtopped him by a head. At Oxford I found men
who, when at Winchester with me, could have thrashed me with one
hand, but who then, if engaged in such a contest, would I think have
preferred the use of three.
But I must not quit my subject altogether without noticing some of
the more important changes that have taken place in the institutions
of the College since the time when I was first admitted. I will mention
them in the same order that I observed when treating of them as
they were in my time.
The Choristers are now no longer mere fags to the boys, but really
do sing, and have had a handsome school built for their
accommodation. The old Commoners’ buildings were removed in my
time, and replaced by a more commodious and hideous structure, in
which for some time the head-master received boarders. These have
all migrated to four masters’ houses in Culver’s Close. They still call
themselves Commoners, so that, for purposes of athletic
competitions, &c., the school is divided into College, Commoners,
and Houses (these latter being the occupants of the other five
masters’ houses not in Culver’s Close). The building which was
vacated by Commoners has been adorned and renovated by Mr.
Butterfield, and now presents quite a respectable appearance. In it
the new Library and various lecture rooms are located. The College
boys are still 70 in number, but the number in Commoners and
Houses has more than doubled since 1836, when there were about
120 (I believe at one time they dwindled down to 65). There are now
about 350, and, if more masters’ houses were built, this number
might be greatly increased. There are now nine masters’ houses, in
each of which from 35 to 40 boys are accommodated, and the
number of applications from anxious parents who wish to get their
boys into the school is so excessive as to cause great
embarrassment to the masters and much disappointment to the
candidates.
In College the office of Præfect of Tub has been abolished, and a
Præfect of Library installed in his place. There are now only two half
remedies (Tuesdays and Thursdays) in each week; but Thursday is
a whole remedy in the Summer term, and there is a vacation of three
weeks at Easter. Going in procession to “Hills” is discontinued, and
the boys may go where they like (except into the town) out of school
hours. Watching-out at cricket is considerably limited, and “kicking-
in” at football entirely abolished. The College Chambers[13] (except
Fourth) are removed to the two storeys above, which were supposed
to be occupied by the Fellows, but were hardly ever used by them. In
the new Chambers there is every necessary appliance for decency
and comfort, so that the Junior in winter has no longer to rub his
miserable little nose with a bit of ice, and think he is washing himself,
but can revel in any amount of fresh water indoors. The old
Chambers are mostly used as studies, book-chambers, and toy-time
as before; but one is used as a laundry and another as a dressing-
room after football, cricket, &c. The boys have tea found for them in
Hall, instead of having to go to sick-house for it. The dinner takes
place at one o’clock. The boys get crockery instead of trenchers to
eat their meals off, and knives and forks to eat them with.[14] Prime
joints are carved by the servants, and a master is present. The
pandemonium which took place when I was a Junior at the six
o’clock dinner has happily entirely departed. At supper gaslight
illumines the Hall, instead of the feeble flickering of a few dips. The
ceremony of the oath is abolished. The Morning Service in chapel is
at 7.50, on Saturday evenings at 5.30, on Sundays at 9, 11, and 5,
and on Saints’ days at 9 a.m. Only the members of the Choir wear
surplices. The boys only go to Cathedral on the second Sunday in
each month.
School is now kept closed, and is only opened for concerts,
lectures, &c. Its appearance has much changed. The seats and the
fixed forms which supported them are swept away, a handsome
organ is erected at the east end, and the “Tabula Legum” has been
moved to another position over the entrance-door. The mouldings of
the cornices are picked out in colour, the wainscoting varnished; and
the magnificent room presents a great contrast to what it was when it
was the only living room for the boys in play as well as in school
hours.
The area of College Meads has been much extended by throwing
down the walls which separated it from “Long” and “sick house”
Meads. A racket and fives courts have been erected by the Ridding
family for the benefit of the School. There is a large gymnasium, and
very extensive buildings erected for additional accommodation for
invalids. A splendid additional cricket-ground has been laid out
adjoining the old Meads, which together make, I fancy, the finest
playground attached to any school in the world.
The glories of the old Election week have altogether vanished. The
election to Winchester is still in the middle of July; and there is a
dinner in Hall on Domum Day, but there are very few old
Wykehamists in attendance. The parents and tutors of the
candidates for election muster strong for the examinations, which
last three days; and the ordeal they have now to pass through is very
different indeed from that which I have described as taking place
when I was a candidate. The distinction and privileges of Founders’
kin are entirely abolished. Commoners are admitted to Election
Chamber, and have an equal chance with College boys of getting
scholarships at New College.[15]
Besides all these alterations in the buildings and regulations,[16]
there are many fresh institutions which are sources of great interest
to the boys. There is a Rifle Corps, a Debating Society, Shakespeare
Society, Glee Club, Chapel Choir, a Boat and a Golf Club. Golf,
however, is not allowed in the Summer term.
On the whole, I do not think it would be a great exaggeration to
say that there have been more changes in the school arrangements
since 1835 than took place in the whole period from the foundation
to that date.
 As regards the changes that have been enforced on the College
by the Government, I feel myself incompetent to form an opinion. I
have heard them both extolled and vituperated by individuals whose
opinions are worthy of respect, and who have the welfare of the
school at heart. At any rate, I earnestly hope that the good effects
expected by the former will be fully realised, and the forebodings of
the latter prove illusory. I have little doubt myself that as long as the
moral and physical wellbeing of the boys is so carefully looked after
as it now is, that Wykeham’s College will continue to maintain its
high reputation; and though but few of her sons may dazzle the
world by their wealth, rank, or power, the majority may yet, at any
rate, prove always by their manly and honourable bearing, that they
know the meaning of the motto of their illustrious founder,

MANNERS MAKYTH MAN

 NOTE.
Mr. Wrench has recently published a “Dictionary of Winchester
Slang,” which has probably had a wide circulation among
Wykehamists. He has given a list of all the words he could collect,
used in days before my time, and those of more recent coinage. In
the following Glossary I have strictly confined myself to those in use
while I was in the school. It interested me much to learn from Mr.
Wrench’s book, not only the number of quite new words (for
instance, the title of his work—“Notions”—was invented subsequent
to my period), but also the change in the meaning of several of the
words which are still used.
 GLOSSARY
OF

WORDS, PHRASES, AND CUSTOMS, PECULIAR

TO WINCHESTER COLLEGE.[17]

⁂ The few woodcuts interspersed through the Glossary are not

such faithful representations as the author could have wished.
However, they serve in some measure to explain the various
colloquialisms.

A.
ABROAD—A boy was said “to come Abroad” when he returned to
his school duties after having been “Continent,” (v. inf.)
ABS.—Was written after a boy’s name on a Roll, (v. inf.,) to show
that he was absent from Chapel or Hills, or from any place,
where names had been called.
AD PORTAS—A Latin oration addressed by the Præfect of Hall to
the Electors, under Middle gate, at the commencement of
Election week.
AMEN CHAPEL—A long service performed on the four days set
apart for commemorating the Founder, and on the anniversary
of his death.
APPLE-PIE DAY—The last Thursday in Short half, on which we had
apple-pies for dinner.

B.
BAKER—Anything (such as a cushion or blotting-book) placed on a
form to sit upon.
BANGIES—Drab trousers; so called from
BANGY—Brown sugar.
BARTER—A half-volley (cricket term), so called from the late
Warden, who was celebrated for the vigour with which he
disposed of a ball of this description.
BATLINGS—The boys’ weekly allowance of one shilling.
BEESWAXERS—Thick laced boots.
BEEVER-TIME—A quarter of an hour’s relaxation allowed to the
boys in the middle of afternoon school in summer, to give them
an opportunity of disposing of
BEEVERS—A portion of bread and allowance of beer laid out in hall
at the time above mentioned; from the French boire, buveur.
BIBLE CLERK—An office held by the Præfects in full power in
rotation; it lasted for a week. The duties were to collect the
Verse and Prose tasks; to keep order in School; to give in the
names of those boys who were condemned to be “Bibled,” (v.
inf.,) and afterwards assist at their execution; to take the place
of the Præfect of Hall when absent, &c., &c.
BIBLER, or BIBLING—A flogging of six cuts, when the Bible Clerk
and Ostiarius laid bare a hand’s-breadth of the small of the
victim’s back.
BILL BRIGHTERS—Small faggots used for lighting kitchen fire.
BLOW—To blush.
BLUCHERS—Præfects not in full power; a metaphor taken from the
half boot.
BOB—A large white jug, holding about a gallon.
BONER—A blow given with the fist on the lowest vertebra.
BOOK—The School was divided into three classes, called Sixth,
Fifth, and Fourth Book. The Præfects formed the former. Fifth
Book was divided into Senior, Middle, and Junior Part. The
remaining lower boys constituted Fourth Book.
BOOKS, THE—The prizes given to the two boys at the head of each
Part at the end of each Half; they used at one time to be given
by the Duke of Buckingham, now by Lord Saye and Sele. Also
anybody who had got the largest score on his side in a cricket
match, was said “to have got Books.”
BOOKS CHAMBERS—Certain hours on a Remedy, (v. inf.,) during
which the boys had to attend in School, no Master being
present.
BOOKS, UP TO—A Part (v. s.) was said to be so, when it was
ranged on the “Rows” (v. inf.) before a Master, for the purpose of
repeating a lesson.
BOOTS AND LEATHERS—A Commoner Peal, (v. inf.)
BREADPICKERS—A nominal office, one being in the gift of each of
the four senior Commoner Præfects, which excused the holder
from fagging.
BROCK—To teaze, chaff, or badger.
BROLLY—An umbrella.
BRUM—Without money.
BULKY—Generous.

C.
CANDLEKEEPERS—The seven Inferiors (v. inf.) who had been in
College the longest time. They were excused from all fagging,
though if there was an absolute dearth of Juniors, Præfects in
full power had (though they rarely exercised it) the right to fag
them. They were allowed a Breakfast fag in Hall, and a Valet (v.
inf.) in Chambers; and the Senior Candlekeeper had the power
of fagging the twenty Juniors on the School side of Seventh
Chamber Passage Gate.
CANDLESTICKS—Candidates for admission into College.
CARGO—A hamper of eatables sent to a boy by his friends.
CAT’S HEAD—A Dispar, (v. inf.,) the end of a shoulder of mutton.
CHAMBER DAY—A day on which access was allowed to Chambers
during the whole day.
CHILD—Each of the Electors appointed one; his principal duty was
to pocket a sovereign.
CHINTZ—A chance.
CLASSICUS—The boy who at the end of the week has the smallest
score in the
CLASSICUS PAPER—The book in which, each day after morning
school, the position of each boy in his Part was marked, the
lowest being marked one, and so on. The Classicus had to get
the lessons set, as well as the Themes for composition.
CLEAN STRAW—Clean sheets.
CLOISTERS—The name given to Middle and Junior Part of Fifth
Book, when combined together in
CLOISTER TIME—Ten or twelve weeks at the latter end of Long
Half, commencing about Whitsunday and ending at Standing-up
week, (v. inf.)
CLOISTER ROUSH—An annual engagement between Cloisters and
Senior Part in School at the beginning of Cloister Time.
CLOW—A box on the ear.
COLLEGE WARE—Crockery that fell without breaking.
COMMON TIME—The Short Half, and beginning of Long, up to
Easter Time.
COMMONERS—The boys not on the foundation. Also the building
they lived in.
COMMONER GRUB—An entertainment given by Commoners to
College after the cricket matches.
COMMONERS SPEAKING—The day on which the speakers
selected from among the Inferiors declaimed.
CON—A blow on the head given with the knuckles or any other hard
substance, derived from κoνδυλον, a knuckle.

CON.

CONDUIT—A water tap.

CONTINENT—A boy was said to go Continent when he left School
for Sick-house.
COURSE, IN—The two Præfects of Chapel are said “to be in
Course” on alternate weeks, when they have to call names at
the end of the service. The Præfects in each Chamber are “in
Course” in rotation, during which time they are especially
 responsible for what goes on within their jurisdiction. A new boy
on his arrival was not liable to be fagged for the first fortnight;
when his fagging commenced he was said to be “in Course.”
COURSEKEEPER—An office in the patronage of the Commoner
Præfects, the duties of which were principally connected with
the organisation of the fagging department. He was required to
have been three years in the school, to be of reasonable bodily
strength, and in Middle Part. His privileges were numerous, the
principal being that he was allowed to fag. When he ascended
into Senior Part his duties ceased, but his privileges remained;
he was then called “Ex-Coursekeeper.”
CROCKETTS—Miniature Cricket, played with a stump and a five’s
ball. Also, when a boy had got no runs in a cricket match, or had
failed in a lesson of Standing Up, (v. inf.,) he was said to have
“got Crocketts.”
CROPPLED—To be floored in any examination.
CUD—Pretty, Nice.
CUSE PAPER—The same as Classicus Paper, (v. sup.)
CUT IN A BOOK—A method of drawing lots. A certain letter was
fixed on, (e.g., the first in the second line on the left page,) each
boy then turned over a leaf, and whoever turned over the leaf in
which the corresponding letter was nearest to A, won.

D.
DEPUTY—The Junior Candlekeeper, who had the organisation of
the Fagging department, and assisted the Senior Candlekeeper
in thrashing the Juniors in Hall.
DISPAR—The rations of meat served out for dinner: derived either
from “Dispertio,” to divide, or “Dispar,” uneven.
DOCK A BOOK—To tear out the leaves.
DOLE—A stratagem; a clever invention, trick, or dodge.
DOMUM—A Latin canticle, supposed to have been written by a boy
who was not allowed to go home for the holidays. The tradition
says that he carved it on a tree, and then committed suicide. On
the last Friday in Long Half, after Election, a kind of festival was
held in the evening, when numbers of people came into College,
and “Domum” was sung over and over again in School, Meads,
and the principal Quadrangle. Ten minutes before the time for
descending Hills, the three Juniors in College had to walk round
and across Hills, calling “Domum,” as a signal to the boys to
prepare to start.

E.
ELECTION—The examination of Præfects and Senior Part for New
College; and of Candidates for admission to Winchester.
ELECTORS—The Warden and two Fellows of New College; and the
Warden, Sub-warden, and Head-master of Winchester, who
conducted the examination above mentioned.
END—At dinner-time the Inferiors (v. inf.) were divided into six
companies, each being presided over by a Candlekeeper.
These companies, and the tables at which they sat, were called
“Ends.”
EX-COURSEKEEPER—(V. sup.)
EX TRUMPS—Extempore.

F.
FARDEL—Sixth Book and Senior Part were divided into three
Fardels (or parts) for the examination in Election week.
FAT FLAB—The name of a Dispar; part of the breast of mutton.
FINJY—When some one of a number of boys had something
unpleasant to do, he who said “Finjy” last had to do it.
FLESHY—The name of a Dispar; a thick cut out of the middle of a
shoulder of mutton.
FORICUS—Latrine.
FOUNDER’S COM—The four days on which there were festivals in
commemoration of the Founder, when there was Amen Chapel,
the Fellows and Masters gave a dinner in Common-room, and
the Founders (v. inf.) received a sovereign each.
FOUNDER’S OB—The Anniversary of the Founder’s death.

FOUNDERS KIN—(see p. 55.)

FOUNDERS—Boys who proved their descent from the Founder, and

were afterwards elected (by vote among the Electors) as such.
Only two were admitted each year; and only two were sent to
New College, but these two were put at the head of the “Roll,”
(v. inf.,) whatever their previous position in Sixth Book might
have been. They were not obliged to leave at the age of
eighteen, as the other boys were, but were allowed to remain till
they were twenty-five. They were supposed to have particularly
thick skulls.
FOUR-HOLED MIDDLINGS—Ordinary walking shoes
FOURTH BOOK—All the boys below Junior Part the Fifth.
FRAGMENT—A private dinner-party given in Hall to a certain
number of boys, by the Warden, or one of the Masters or
Fellows.
FRATER—Brother.
FROUT—Angry.
FUNCTIOR—The rushlight in each chamber.
FURKED—To be expelled.

G.
GAIN A YEAR BY ELECTION—A boy (not being a Founder) was
obliged to leave at the Election immediately succeeding his
eighteenth birthday; he whose birthday came shortly after
Election, was thus enabled to stay till he was nearly nineteen,
and was so said “to gain a year.”
GAGS—Slang name for
GATHERINGS—Criticisms on some Greek or Latin author, written in
Latin by Sixth Book and Senior Part, eight times in the year. In
the other Parts an analysis of some history, in English, was so
called.
GATER—A spring head-foremost into “Pot,” (v. inf.,) over one of the
projecting handles of the canal lock-gate.
GATES—When the boys were assembled together in Seventh
chamber passage, preparatory to going on to Hills or Cathedral,
they were said “to be at Gates.”
GLOPE—To spit.