A 13-year maturity convertible bond with a face value of $1,000 and a 8% coupon on a company with a bond rating of Aaa is selling fo $1,090. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 10%. What is the value of the bondholders' call option? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of call option

A 13-year maturity convertible bond with a face value of $1,000 and a 8% coupon on a company with a bond rating of Aaa is selling fo $1,090. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 10%. What is the value of the bondholders' call option? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of call option

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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A 7-year, 11.00% semiannual coupon bond with a par value of $1000 may be called in 5 years at a call price of $1,175.00. The bond sells for $1,040.50. (Assume that the bond has just been issued.). What is it’s yield to maturity? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
You are considering the purchase of a $1,000 par value bond with a coupon rate of 4.2% (with interest paid semiannually) that matures in 12 years. If the bond is priced to yield 8%, what is the bond's current price? The bond's current price is $. (Round to the nearest cent.)
Food Bank, Inc. offers a 7.0 percent coupon bond with semiannual payments and a yield to maturity of 7.75 percent. The bonds mature in 15 years. What is the market price of a $1,000 face value bond? $937.26 $934.81 $936.60 $934.16
An investor holds a callable bond of BD Motors Ltd. with a face value of BDT 15,000, a coupon rate of 6%, and 20 years to maturity. The bond becomes callable in 12 years at a call price of BDT 16,500. Given that the current market price is BDT 17,800, calculate the yield of holding BD Motors' bond until it is called. b. What would be the yield if the call price were BDT 18,500? Does the Yield to Call (YTC) increase or decrease? Briefly explain your understanding.
Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 7.20% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's yield to call? Hint: Calculate the bond's price based on the YTM, and then use that price to find the YTC. Your answer should be between 4.08 and 10.64, rounded to 2 decimal places, with no special characters.
Fooling Company has a callable bond outstanding with a coupon of 10.8 percent, 25 years to maturity, call protection for the next 10 years, and a call premium of $100. What is the yield to call (YTC) for this bond if the current price is 105 percent of par value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one-year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three-year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
A 7-year, 11.00% semiannual coupon bond with a par value of $1000 may be called in 5 years at a call price of $1,201.00. The bond sells for $985.50. (Assume that the bond has just been issued.). What is it’s yield to maturity?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. 10.51% 8.59% 11.53% 11.31% 9.27%
you are considering the purchase of a semiannual bond with a 9% coupon rate, it is trading at $875 and matures at $ 1000 in 25 years. What is the coupon payment on this bond?.
You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
What is the yield to maturity of a eight-year, $10,000 bond with a 5% coupon rate and semiannual coupons if this bond is currently trading for a price of $9,682?
Firm ABC has a bond with face value of $100, coupon rate of 6%, and a 10-years maturity. Firm ABC makes semi-annual coupon payments. Investors require a return of 7%. (1) What is the present value of all coupon payments? (2) What is the present value of face value? (3) What is the value of the bond? (4) If the price of the bond is $100, will you invest in such a bond? (5) If interest rate goes up by 2%, what will be the value of the bond? (6) What will be the rate of change in the value of the bond compared to the value of (3) above?

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