A firm sells bonds with a par value of 1000 Rupees, carry a 8% coupon rate, with a maturity period of 9 years. The bond sells at a yield to maturity of 9%. a) What is the interest payment you should receive each year? b) What is the selling price of the bond?

A firm sells bonds with a par value of 1000 Rupees, carry a 8% coupon rate, with a maturity period of 9 years. The bond sells at a yield to maturity of 9%. a) What is the interest payment you should receive each year? b) What is the selling price of the bond?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4MC

See similar textbooks

Related questions

Q: A par bond has a yield to maturity of 1.5% and pays coupons semi-annually. What is the coupon…

A: The yield to maturity (YTM) of a bond selling at par has been provided. The bond pays coupon semi…

Q: Consider a bond with a principal of $1,000 that pays a coupon of $100 per year. If the bond matures…

A: Bond: It is a fixed income instrument that represents a loan made by an investor to a borrower. We…

Q: Consider a coupon bond that pays interest semiannually has a par value of $1000, matures in 9 years,…

A: SEMI ANNUAL PERIOD (9*2) 18 COUPON RATE (7%/2) 3.50% PMT (COUPON AMOUNT) $35.00 YIELD TO…

Q: Consider a bond with a face value of $5,000 that pays a coupon of $200 for 5 years. Suppose the bond…

A: YTM offers a thorough evaluation of a bond's prospective return by taking into account both coupon…

Q: a. The bond has a 6% coupon rate. b. the bond has an 8% coupon rate. c. The bond has a 10% coupon…

A: The price of the bond is the PV of all future coupons and par value discounted at the YTM. Since the…

Q: What is the price of the bond at 3 different points in time - today, in 1 year, and in 2 years. Is…

A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…

Q: A General Power bond carries a coupon rate of 8.2%, has 9 years until maturity, and sells at a yield…

A: Bonds are fixed-income assets that serve as a representation of investor loans to borrowers…

Q: A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder…

A: The objective of the question is to understand the concepts of redemption yield and interest yield…

Q: A bond has the following features: Coupon rate of interest (paid annually): 12 percent…

A: Annual remittance refers to an amount that is remitted each year including the principal and…

Q: a. What was the price of this bond when it was issued? The price of this bond when it was issued was…

A: Information Provided: Years to maturity = 10 Face value = $1000 Coupon rate = 10% Yield to Maturity…

Q: You are selling a 30-year coupon bond with a par value of $10,000 and a coupon rate of 8% that has…

A: Bond is type of debt security which is issued by government or corporations for rising the funds.

Q: rate of return of the bond? W

A: Bond price refers to the amount which an investor is willing to pay at the time of existence of…

Q: What is the duration of the following bond:$1,000par value,6%annual coupon, 4 years to maturity, and…

A: Par value = $1,000Annual coupon rate = 6%Yield to maturity (YTM) = 6.5%Years to maturity = 4 years

Q: A 30-year maturity bond with a face value of $1,000 making annual coupon payments with a coupon rate…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: The bond's duration is the sum of the present value of each payment weighted by the time period in…

A: Solution5. Calculate the Present Value Interest Factor (PVIF) at 7% for Year 5:

Q: You are interested in purchasing a bond from Swiss international. The bond had a 32 year maturity…

A: The objective of this question is to calculate the Yield to Maturity (YTM) and the current yield of…

Q: uppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %.…

A: Bond is considered as a fixed-income instrument. It represents the loan made by an investor to the…

Q: What is the yield to maturity on a bond that has a price of $1,700 and a coupon rate of 12% annually…

A: Information provided: Price = $1700 Future Value = $1000 Coupon rate = 12% Coupon payment = 120…

Q: A bond has 10 years until maturity, a coupon rate of 8.1%, and sells for $1,190. Interest is paid…

A: a. Calculation of bond price:Formula used:

Q: Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000,…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Question

A firm sells bonds with a par value of 1000 Rupees, carry a 8% coupon rate, with a maturity period of 9 years. The bond sells at a yield to maturity of 9%.

a) What is the interest payment you should receive each year?

b) What is the selling price of the bond?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Consider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? What is the yield to maturity of the bond?
What is the yield to maturity on a bond that has a price of $1,700 and a coupon rate of 12% annually for 6 years at the end of which it repays the principal of $1000? Is the bond selling at premium, at par, or at discount? How can you tell? (Using financial calculator)
Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In 10 years’ time, the bond’s yield to maturity has risen to 7% (EAR).a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond?b. If instead you hold the bond to maturity, what internal rate of return will you earn on your investment in the bond?c. Is comparing the IRRs a useful way to evaluate the decision to sell the bond?
A bond has the following features: Coupon rate of interest: 5 percent Principal: $1,000 Term to maturity: 10 years a. What will the holder receive when the bond matures? b. If the current rate of interest on comparable debt is 8 percent, whatshould be the price of this bond? Would you expect the firm to callthis bond? Why? c. If the bond has a sinking fund that requires the firm to set aside annuallywith a trustee sufficient funds to retire the entire issue at maturity,how much must the firm remit each year for ten years if the funds earn8 percent annually and there is $100 million outstanding?
Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% when you purchased and sold the bond,a. What cash flows will you pay and receive from your investment in the bond per $100 face value?b. What is the internal rate of return of your investment?
Consider a bond with a principal of $1,000 that pays a coupon of $100 per year. If the bond matures in one year and the current interest rate is i = 3%, what is the price (present value) of the bond? Round to the nearest cent. Answer:
Suppose you purchase a 10-year bond with 6.64% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.17% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) OA. Years Cash Flows O B. Years C. Years Cash Flows Cash Flows - $114.06 O D. Years 0 Cash Flows $107.42 0 0 - $111.26 0 $111.26 1 $6.64 1 $6.64 1 $6.64 1 $6.64 2 $6.64 2 + $6.64 2 + $6.64 2 + $6.64 3 $6.64 3 $6.64 3 $6.64 3 $6.64 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.) 4 $114.06 4 $107.42 4 $114.06 4…
A newly issued bond has a maturity of 10 years and pays a 7% coupon rate (with coupon payments coming once annually). The bond sells at par value. (i) What are the convexity and the duration of the bond? (ii) Find the actual price of the bond assuming that its yield to maturity immediately increase from 7% to 8% (with maturity still 10 years). (iii) What price would be predicted by the duration rule? What is the percentage error of that rule? (iv) What price would be predicted by the duration-with-convexity rule? What is the percentage error of that rule?
Consider a bond with a face value of $5,000 that pays a coupon of $200 for 5 years. Suppose the bond is purchased at $5,000, and can be resold next year for $4,800. What is the rate of return and the yield to maturity of the bond? rate of return = 4%, yield to maturity = 0% rate of return = 0%, yield to maturity = 4% rate of return = 8%, yield to maturity = - 4% rate of return = 4%, yield to maturity = 4%
You are selling a 30-year coupon bond with a par value of $10,000 and a coupon rate of 8% that has 8 years remaining until it matures. If current interest rates are 7%, a. Calculate the price of your bond on the secondary market. b. Calculate your total return. Did you experience a capital gain or loss?
Suppose you purchase a 10-year bond with 6.4% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.5% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Year 0 1 2 3 4 Cash Flows $110.90 $6.40 $6.40 $6.40 $104.50 B. Year 0 1 2 3 4 Cash Flows - $106.78 $6.40 $6.40 $6.40 $110.90 C. Year 0 2 3 4 Cash Flows $104.50 $6.40 $6.40 $6.40 $110.90 OD. Year 1 2 3 Cash Flows $106.78 $6.40 $6.40 $6.40 $110.90 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to one decimal place.)
suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 6% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. 1. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is nothing%. (Round to two decimal places.)