Financial accounting A zero-coupon bond is being offered by ABC Corporationfor $4,000. The bond will mature in 8 years with aredemption value of $6,000. What annual interest ratewould an investor earn by purchasing this bond?A. 4.15%B. 5.20%C. 5.75%D. 6.25%E. 7.00%

Step 1: Define zero-coupon bond is a bond that does not pay periodic interest. Instead, it is sold…

Answered: A zero-coupon bond is being offered by…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 6FPE

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Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of 1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Fill in the following table:
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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
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A bond promises to pay you $7,000.00 in 10 years. If you are able to earn 6 percent on securities of equal risks, what would be the present value of the Bond? (to the nearest dollar) Select one: O a. $4,200 O b. $3,589 Oc. $3,727.00 O d. $3,909 A bond will sell at if the required return is greater than the coupon rate.
You own a $1,000 par value bond with 20 years to maturity that is paying an annual coupon rate of interest of 11%. If the current yield to maturity on this bond is 12%, what is the value of the bond? The bond makes semi-annual interest payments. Select one: A. $925.31 B. $892.58 C. $924.77 D. $980.15
Calculate the yield to maturity for a bond that has a $1,000 per value, 15 years to maturity, a 4% annual coupon, and currently sells for $990. Assume the bond is callable 2 years from today at a call price of $1,040. A. 4.09% B. 4.29% C. 4.53% D. 6.49%
A $1,000 face value bond currently has a yield to maturity of 9.06%. The bond matures in three years and pays interest annually. The coupon rate is 7.00%. What is the current price of this bond? Group of answer choices $947.91 $949.60 $1,005.26 $1,008.18

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A zero-coupon bond is being offered by ABC Corporation for $4,000. The bond will mature in 8 years with a redemption value of $6,000. What annual interest rate would an investor earn by purchasing this bond? A. 4.15% B. 5.20% C. 5.75% D. 6.25% E. 7.00%