4. An 11-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $910. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What are the stated and expected yields to maturity of the bonds? The bond makes its coupon payments annually. 5. Suppose that today's date is April 15. A bond with a 8% coupon paid semiannually every January 15 and July 15 is listed in The Wall Street Journal as selling at an ask price of 1,013.333. If you buy the bond from a dealer today, what price will you pay for it?

4. An 11-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $910. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What are the stated and expected yields to maturity of the bonds? The bond makes its coupon payments annually. 5. Suppose that today's date is April 15. A bond with a 8% coupon paid semiannually every January 15 and July 15 is listed in The Wall Street Journal as selling at an ask price of 1,013.333. If you buy the bond from a dealer today, what price will you pay for it?

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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Suppose the interest rate on a 1-year government bond is 3.00%, on a 4-year government bond is 3.50% and that on a 6-year government bond is 4.90%. What is the market's forecast for 2-year rates 4 years from now, assuming the pure expectations theory is correct? Show your work.
A firm has issued bonds with a remaining maturity of 1 year, face value of $100 and an annual coupon rate of 5% (there is only one coupon payment left, to be paid one year from now). You observe that the price of the bonds is $94. What is the yield on the bonds today? Suppose that investors expect a 4% return on other bonds with similar maturity and risk and forecast that if the bond defaults, bond holders will get paid 70% of the coupon payments and principal value they are owed (i.e., a 70% recovery rate). What is the expected cash flow of the bonds at time 1? What is the probability of default implied by current bond prices?
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Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of 15 percent. Both bonds have eight years to maturity, a par value of $1,000, and a YTM of 11 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Percentage change in price b. Percentage change in price Bond J % % Bond K % %
(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 19 years has a $1,000 par value. The annual coupon interest rate is 13 percent and the market's required yield to maturity on a comparable-risk bond is 12 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? a. The value of this bond if it paid interest annually would be $ (Round to the nearest cent.)
A 10-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $900. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. what are the stated and expected yields to maturity of bonds? The bond makes its coupon payments annually. Do not round intermediate calculations. ( Round your answers to 2 decimal places.).
Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.
7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (VTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: O $876,205.93 O $1,051,447.12 O $744,775.04 $552,009.74 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: The T-note described in this problem is selling at a
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3. The U.S. Government has a 20-year bond that matures 20 years from now and has a face value of $1,000. The bond has a coupon rate of 3.1% per year, paid semiannually. The yield on the bond is 8%. If coupons are reinvested at 3.6% per annum, then how much interest is earned on reinvested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received by the bondholder. What is the amount of interest earned on reinvesting the coupons? $ (Round to the nearest cent.) What percentage of the total cash flows received by the bondholder is the interest earned on the reinvested coupons? % (Round to two decimal places.)
4. Suppose that the market rate of interest is 12 per cent on a government bond with a perpetuity payment, which is a coupon value (annual payment) of £6 per year indefinitely. The face value of the loan is £100. a) Define and calculate the price of the bond? Answers.. b) At what yield (or rate) will the loan be trading at par? Explain whether it is trading above or below par in a). Answers... c) Assume that the rate of interest is 'expected' to drop to 3 per cent, derive and calculate the rate of capital gain (or loss)? Answers . d) Derive and explain the expression for the number of bonds held representing the amount of money spent on bonds (B) with the corresponding mean rate of return (HR). Answers.. e) Imagine that W = £40,000, what is the amount spend on bonds, B', if the standard deviation (SD) of earnings (s) is equal to 0.10 with a 3,000,the SD of the total return on bonds, SR. What is the money holding, which is M*? Answers.. Find the mean return on bonds with u = 1. Answer..
17. Apollo's Beta bond has just reached the end of its period of call protection, has 10 years to go until maturity, and has a face value of $1,000. Its coupon rate is 16%, and the interest rate is currently 10%. Should Apollo refund this issue if refunding costs a total of 8% of the value of the debt re- funded plus the call penalty? (Hint: See the refunding decision page 306.) 18. Snyder Mfg. issued a $1,000 face value 30-year bond 5 years ago with an 8% coupon. The bond is subject to call after 10 years, and the current interest rate is 7%. What call premium will make a bondholder indifferent to the call? (Hint: Equate the formulas for the bond's price with and without the call.)

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