As shown in Figure 4-7, the BellSouth bonds initially sold at par, but then fell be-
low par in 1996 when interest rates rose. The price rose above par in 1997 and 1998
when interest rates fell, but the price fell again in 1999 and 2000 after increases in in-
terest rates. It rose again in 2001 when interest rates fell. The dashed line in Figure 4-7
180 CHAPTER 4 Bonds and Their Valuation
FIGURE 4-6 Selected Bond Market Data
FIGURE 4-7 BellSouth 7%, 30-Year Bond: Market Value as
Interest Rates Change
Note: The line from 2001 to 2025 appears linear, but it actually has a slight downward curve.
1995 2000 2005 2010 2015 2020 2025
Bond Value
1,200
1,100
0
900
1,000
Years
Bond's Projected Price
if Interest Rates Remain
Constant from 2001 to 2025
Actual Price of the
7% Coupon Bond
($)
S&P
Bond Issue Coupon Yield to Yield to
Rating Name Rate Maturity Datea Maturity Callb Pricec
A BellSouth 6.375 6/15/2004 3.616 NC 106.843
A BellSouth 7.000 2/1/2005 4.323 NC 108.031
A BellSouth 5.875 1/15/2009 5.242 NC 103.750
A BellSouth 7.750 2/15/2010 5.478 NC 114.962
A BellSouth 7.000 10/1/2025 6.501 NC 106.000
A BellSouth 6.375 6/1/2028 6.453 NC 99.000
A BellSouth 7.875 2/15/2030 6.581 NC 116.495
A BellSouth 7.875 08-01-2032C 7.270 3.523 107.375
A BellSouth 7.500 06-15-2033C 7.014 6.290 106.125
A BellSouth 7.625 05-15-2035C 7.169 6.705 105.750
Notes:
aC denotes a callable bond.
bNC indicates the bond is not callable.
cThe price is reported as a percentage of par.
Source:10/25/01, http://www.bondsonline.com. At the top of the web page, select the icon for Bond Search,
then select the button for Corporate. When the bond-search dialog box appears, type in BellSouth for Issue and
click the Find Bonds button. Reprinted by permission.
176 Bonds and Their Valuation
