7. A bond with a face value of $5,000 pays interest of 8% per year. This bond will beredeemed at par value at the end of its 20-year life, and the first interest payment is dueone year from now. If this bond is purchased now for $4,600, what annual yield would thebuyer receive?

The annual percentage yield (APY) is the real rate of return earned on an investment, taking into…

Answered: 7. A bond with a face value of $5,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Today an investor purchases a 30-year bond (face value =\$1,000) for $627.73. The bond has a coupon rate of 4% and a yield to maturity of 7%. It pays coupons annually (not semiannually). The investor plans to hold the bond for 1 year. If the yield to maturity of the bond becomes 8% at the end of the year, what is the bond rate of return over the year?
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Suppose a pure discount State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 3.5%, how much is the bond worth today?
One hundred $1,000 bonds having bond rates of 8% per year payable annually are available for purchase. If you purchase them and keep them until they mature in 4 years, what is the maximum amount you should pay for the bonds if you wish to earn no less than a 7% effective annual return on yourinvestment?
A bond with a face value of $4,000 pays quarterly interest of 1.5 percent each period. Twenty-two interest payments remain before the bond matures. How much would you be willing to pay for this bond today if the next interest payment is due now and you want to earn 8 percent compounded quarterly on your money?
6) You buy a 5-year bond that pays a $4 coupon each year for five years (first coupon paid the end of year 1). At the end of 5 years, you receive back your principle of $100 (in addition to the final coupon payment of $4). Immediately after you purchase the bond, interest rates move to 7%. What is the present value of the cash flows you will receive? Now say rates moved to 2%, what is the present value of the cash flows you receive?
A 15 years bond with annual coupon rate equal to 10% (paid semiannually), if the par value of the bond is JD 10,000, and the required rate of return forl similar risk level investments is 8%, and the bond is redeemable at JD facei value, what is the market value of the bond after three years of issuance?
A $3000, 7.5% bond (payable semi-annually) is redeemable at par in 2 years and 6 months. If the bond is purchased to yield 8.1% compounded semi-annually, determine the purchase price of the bond. Draw a timeline in your notes to help you practice!
Suppose a State of Califomla bond will pay 1,000 eight years from now. If the going interest rate on these 8 year bonds is 6.0% how much is the bond worth today?
Lisa's new firm plans to issue a permanent callable bond with a par value of $1,000 and a nominal rate of 5% yearly. The nominal interest rate on these bonds will be 8% next year. Then a year from now, the bond's nominal interest rate will be 9% or 6% with the equal probability(50%). These bonds can be redeemed for $1350. If the bond is called when the interest rate decreases, calculate the callable bond price for today?
What is the present value of a 10-year bond outstanding with 8 years left in “year-to-maturity,” 6% annual required rate, and 4% annual payment rate?
Suppose you have a 9%, 20-year bond traded at $1,350. If it is callable in 5 years at $1,060, what is thebond’s yield to call? Interest is paid semiannually

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7. A bond with a face value of $5,000 pays interest of 8% per year. This bond will be redeemed at par value at the end of its 20-year life, and the first interest payment is due one year from now. If this bond is purchased now for $4,600, what annual yield would the