a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.8%. 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 the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond price 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 90% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Yield to maturity %
a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.8%. 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 the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond price 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 90% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Yield to maturity %
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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Rahul
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Transcribed Image Text:a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.8%. 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 the price of the bond now? (Assume semiannual coupon payments.) (Do not
round intermediate calculations. Round your answer to 2 decimal places.)
Bond price
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 90% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?
(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Yield to maturity
%
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