a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to maturity of 8%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is now the price of the bond? (Assume semiannual coupon payments.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places- Bond price Answer is complete and correct. $ 680.05 b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Yield to maturity Answer is complete but not entirely correct. 617 17 8 0%
a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to maturity of 8%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is now the price of the bond? (Assume semiannual coupon payments.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places- Bond price Answer is complete and correct. $ 680.05 b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Yield to maturity Answer is complete but not entirely correct. 617 17 8 0%
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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Transcribed Image Text:a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to
maturity of 8%. Now, with 8 years left until the maturity of the bonds, the company has
run into hard times and the yield to maturity on the bonds has increased to 15%. What is
now the price of the bond? (Assume semiannual coupon payments.)
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Bond price
Answer is complete and correct.
$
680.05
b. Suppose that investors believe that Castles can make good on the promised coupon
payments but that the company will go bankrupt when the bond matures and the
principal comes due. The expectation is that investors will receive only 80% of face value
at maturity. If they buy the bond today, what yield to maturity do they expect to receive?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places.
Answer is complete but not entirely correct.
Yield to maturity
617.17%
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