1. Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years. The market rate of interest is (round to the nearest hundredth of a percent) Answer: B 11.71%. 2. What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate of 14%, and is currently selling for $911? Assume annual coupon payments. Answer: D 16.22% 3. Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par value of $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if investors' required rate of return is 12%. Answer: A $1,114.70
1. Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years. The market rate of interest is (round to the nearest hundredth of a percent) Answer: B 11.71%. 2. What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate of 14%, and is currently selling for $911? Assume annual coupon payments. Answer: D 16.22% 3. Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par value of $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if investors' required rate of return is 12%. Answer: A $1,114.70
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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Transcribed Image Text:1. Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years.
The market rate of interest is (round to the nearest hundredth of a percent)
Answer: B 11.71%.
2. What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate
of 14%, and is currently selling for $911? Assume annual coupon payments.
Answer: D 16.22%
3. Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par
value of $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if investors' required
rate of return is 12%.
Answer: A $1,114.70
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