According to an article in the Wall Street Journal, bonds issued in 2016 by the toy store chain Toys "R" Us that matured in 2018 and had a 10% coupon were trading at “31 cents on the dollar." Why would an investor sell one of these bonds for 31 cents on the dollar rather than hold the bond for two years and receive 100 cents on the dollar when the bond matured? Which of the following ratings is this bond likely to have received: AAA, BBB, or CCC? Briefly explain.

According to an article in the Wall Street Journal, bonds issued in 2016 by the toy store chain Toys "R" Us that matured in 2018 and had a 10% coupon were trading at “31 cents on the dollar." Why would an investor sell one of these bonds for 31 cents on the dollar rather than hold the bond for two years and receive 100 cents on the dollar when the bond matured? Which of the following ratings is this bond likely to have received: AAA, BBB, or CCC? Briefly explain.

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

See similar textbooks

Similar questions

Consider a one-year, 5-percent coupon bond with a face value of $100 issued by a Seabass Corporation. There is a 10 percent probability that it will default on its bonds and the risk-free interest rate (i) is 3.0%. If an investor were willing to pay $917.48 for the bond, is that investor risk-neutral or risk averse
You buy a 12 percent, 15-year, $1,000 par value floating rate bond in 1999. By the year 2004, rates on bonds of similar risk are up to 14 percent. What is your one best guess as to the value of the bond? Value of the bond
Insouciance, Inc. (President, John Carefree) issued $200,000, 8% coupon bond on January 1, 2010, due on December 31, 2014. The prevailing market interest rate on January 1, 2010 was 10%, and the bond pays interest on December 31 of each. Consider the following (incomplete) table for the bond's carrying value (CV) Dec 31, 2012 ? Dec 31, 2013 CV Required: a. Calculate the price of the bond b. Calculate the missing CV c. How much interest expense did Insouciance record in 2013? d. Now assume semi-annual compounding so that the bond pays interest on June 30 and December 31 of each year. Repeat (a), (b), and (c).
On September 27, 2015, Koala, Inc. issued a 10 year bond (with a typical $1,000 face value) that had an annual coupon value of $65. [We are assuming that the 2021 coupon has just been redeemed.] Initially, the bond was sold at a discount price of $978. • On September 27, 2021, this bond was selling at a premium for $1,010. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 2.8% on September 27, 2015, which reflects market expectations about future rates of inflation. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 1.9% on September 27, 2021, which reflects market expectations about future rates of inflation. 1. What was the nominal yield on this bond on September 27, 2015? [To 1 decimal place.] 2. What was the current yield on this bond on September 27, 2015? [To 3 decimal places.] 3. What was the yield to maturity for this bond on September 27, 2015? [To 2 decimal…
The Isabelle Corporation rents prom dresses in its stores across the southern United States. It has just issued a five-year, zero-coupon corporate bond at a price of $62 (assume a $100 face value bond). You have purchased this bond and intend to hold it until maturity. a. What is the yield to maturity of the bond? b. What is the expected return on your investment (expressed as an EAR) if there is no chance of default? c. What is the expected return (expressed as an EAR) if there is a 100% probability of default and you will recover 90% of the face value? d. What is the expected return (expressed as an EAR) if the probability of default is 50% in good times, the likelihood of default is higher in bad times than good times, and, in the case of default, you will recover 90% of the face value? e. For parts (b) through (d), what can you say about the five-year, risk-free interest rate in each case? Note: Assume annual compounding. C a. What is the yield to maturity of the bond? The yield to…
Hello, How do i solve this corporate finanace question without the use of excel. A financial calculator can be used if required. Can you please show each step in the calculation process? Find the annual rate of this coupon bond: A corporate bond with a face value of $1,000 and coupons paid semi-annually, sells for $1,058.39. The term to maturity is 15 years. The yield to maturity of similar bonds is 9.5%.
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond with semiannual payments has 5 percent annual interest and has 20 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. (Round "PV Factor" to 3 decimal places. Do not round Intermediate calculations. Round the final answers to 2 decimal places.) a. What is the current price of the bonds? Use Appendix B and Appendix D. Current price 530.78 b. By what percent will the price of the bonds increase between now and maturity? Price increases by 88.40 % c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate 4.63 %
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment. Security& Rating Maturity Face Coupon Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 CorpA A 5 $ 1,000 8.10% $ 990.00 CorpB BB 10 $ 1,000 7.90% $ 859.88 CorpC AA 15 $ 1,000 7.00% $ 660.00
On February 9, 2015, Hunter-Gratzner, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $42. We will assume that the 2022 coupon has just been redeemed. Initially (in 2015), the bond was sold at the premium price of $1,037. On February 9, 2022, this bond was selling for $972. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 1.75% on February 9, 2015, which reflected market expectations about future rates of inflation. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 2.05% on February 9, 2022, which reflects market expectations about future rates of inflation. Question: What was the yield to maturity for this bond on February 9, 2015? [To 2 decimal places.]
I need Help with Part B

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS