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
Related questions
Question
Please answer all problems
Transcribed Image Text:Problems
Easy
Problems
7-1
BOND VALUATION Madsen Motors's bonds have 23 years remaining to maturity. Interest
is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield
to maturity is 11%. What is the bond's current market price?
1-4
7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 12 years to matu-
rity, and an 8% annual coupon and sells for $980.
a. What is its yield to maturity (YTM)?
b. Assume that the yield to maturity remains constant for the next three years. What will
the price be 3 years from today?
7-3 BOND VALUATION Nesmith Corporation's outstanding bonds have a $1,000 par value, an
8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond's price?
7-4 YIELD TO MATURITY A firm's bonds have a maturity of 8 years with a $1,000 face value,
have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a
price of $1,283.09. What are their nominal yield to maturity and their nominal yield to call?
What return should investors expect to earn on these bonds?
Intermediate
7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of
$1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures
in 1 year.
a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%?
Assume that only one more interest payment is to be made on Bond S at its maturity
and that 12 more payments are to be made on Bond L.
b. Why does the longer-term bond's price vary more than the price of the shorter-term
bond when interest rates change?
Problems
5-14
7-6 BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each
bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%.
Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond.
a. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4
years, calculate the price of the bonds at each of the following years to maturity:
Years to Maturity
Price of Bond C
Price of Bond Z
4
3
2
1
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