1. (a) On 1 July 2015, an investor buys a corporate bond issued by Krazy Building plc. The bond is repayable at par on 1 July 2035 and has a coupon rate of 6% payable twice yearly in arrears. Calculate the purchase price per £100 nominal if the gross redemption yield is 10.0% pa. (b) Krazy Building has some financial problems and it looks as if the company may not be able to make all repayments on the bond. The price of the bond falls, and on 1 July 2017 the gross redemption yield on the bond is 15.0% pa. On the same day, Big Bank makes an offer to buy the company if bond holders accept an immediate payment of £54 per £100 nominal. Explain why the investor might accept this offer. (Hint: You will need to calculate the market value of the bond on 1 July 2017).

1. (a) On 1 July 2015, an investor buys a corporate bond issued by Krazy Building plc. The bond is repayable at par on 1 July 2035 and has a coupon rate of 6% payable twice yearly in arrears. Calculate the purchase price per £100 nominal if the gross redemption yield is 10.0% pa. (b) Krazy Building has some financial problems and it looks as if the company may not be able to make all repayments on the bond. The price of the bond falls, and on 1 July 2017 the gross redemption yield on the bond is 15.0% pa. On the same day, Big Bank makes an offer to buy the company if bond holders accept an immediate payment of £54 per £100 nominal. Explain why the investor might accept this offer. (Hint: You will need to calculate the market value of the bond on 1 July 2017).

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 8.1 percent paid annually. If the YTM is 10.1 percent, what is the current bond price in euros?
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.5 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 6 percent paid annuallly. If the yleld to maturity is 9 percent, what Is the current price of the bond? Multiple Cholce $779,14 €820.14 €1.030.00 €1,208.05 €861.15
With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.75% and will mature on this day 24 years from now. The yield on the bond issue is currently 6%. At what price should this bond trade today, assuming a face value of $1000 and annual coupons? The price of the bond today should be $_________ (Round to the nearest cent.)
2. Cameron Corporation is offering a new bond issue. It has a $1000 par value, an 8% coupon rate and pays annual interest. It has a 9 year term. Current market interest rates have fallen to 7% during the regulatory filings for the bond. a. Based on current conditions, what will the market price of Cameron's bonds be? b. You bought one of the bonds at issue but one year later need cash and have to sell it. Now the current market rate of interest is 6%. What will your bond price be under these conditions? c. Based on (a) and (b), what would your one year return on your investment be ?
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 8.1 percent paid annually. If the YTM is 10.1 percent, what is the current bond price in euros?
Osbourne Oasis, Inc. is running short on cash. Osbourne decides to sell bonds to help with the cash problem. On January 1, 2022 Osbourne sells $1,000,000, 3-year bonds with a coupon rate of 3% payable annually. The market rate of interest was 4%. What would the journal entry be to record the first payment of interest on 12/31/22? STON Dr. Interest Expense $38,890, Cr. Bonds Payable $8,890, Cr. Cash $30,000 Dr. Interest Expense $30000, Dr. Bonds Payable $8,890, Cr. Cash $38,890 Dr. Interest Expense $30,000, Cr. Cash $30,000
16)The Risky-Bet firm has promised payments to its bondholders that total £100. The company believes that there is an 85% chance that the cash flow will be sufficient to meet these claims. However, there is a 15% chance that cash flows will fall short, in which case total earnings are expected to be £65. If that happens, then the firm will go bankrupt. If the bonds sell in the market for £84, what is (i) an estimate of the bankruptcy costs for Risky-Bet and (ii) the impact of bankruptcy costs on the price of the bond? a.(i) £14.35 and (ii) -£1.68 b.(i) £14.35 and (ii) -£2.14 c.(i) £15.67 and (ii) -£1.68 d.(i) £15.67 and (ii) -£2.14 e.None of the above
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 6 years to maturity, and a coupon rate of 7.4 percent paid annually. If the YTM is 9.4 percent, what is the current bond price in euros?

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