Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 8 percent or 4 percent with equal probability. Assume investors are risk- neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds

Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 8 percent or 4 percent with equal probability. Assume investors are risk- neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds

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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Your company wants to raise $7.0 million by issuing 20-year zero-coupon bonds. If the yield to maturity on the bonds will be 6% (annual compounded APR), What total face value amount of bonds must you issue? The total face value amount of bonds that you must issue is $_____ (Round to the nearest cent.)
One of Carson City Airlines' two bonds is being considered by a businessman. Bond A offers a 7% annual coupon, while Bond B offers a 9% annual coupon. All bonds have a 10-year maturity, a $1,000 face value, and an 8% yield to maturity. Assume that all bonds' yields to maturity will stay stable for the next ten years. Which of the comments below is the most accurate?a. Bond A is now more expensive than Bond B, but the two bonds would be equal in price in a year.b. Now, Bond B is more expensive than Bond A, but in a year's time, the two bonds would be the same premium.c. The prices of all bonds are the same now, and the prices are supposed to stay the same before the bonds maturity.d. Bond A's price would be higher in a year than it is now.e. Bond A has a present yield of more than 8% (not to be mistaken with its yield to maturity).
Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 12 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10.5 percent. What will be the price of these bonds if they receive either an A or a AA rating? Question content area bottom Part 1 a. The price of the Pybus bonds if they receive a AA rating will be $enter your response here.
Calculate the duration of a coupon bond with the following features. What general conclusion can we make about the duration of coupon bonds relative to their time to maturity? Face value of $1000 Five years to maturity Coupon rate of 11%, paid semi-annually Current price of $970 (Hint: The effective annual yield should be 12.1604%.)
Suppose Tesla decides to issue bonds to finance a new production line. Assume the $1,000 face value bond is issued with 10 years to maturity with an annual-pay coupon rate of 5%, and is priced with a yield-to-maturity of 5.5 - what is the price of the bond at issuance
Chamberlain Company wants to issue new 11-year bonds for some much-needed expansion projects. The company currently has 11.4 percent coupon bonds on the market that sell for $1,038.09, make semiannual payments, and mature in 11 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Assume a par value of $1,000.
Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.9% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's yield to call? Hint: Calculate the bond's price based on the YTM, and then use that price to find the YTC. Your answer should be between 4.08 and 10.64, rounded to 2 decimal places, with no special characters.
Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.79 0.96 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank _ % 7-year Corporate yield: fill…
Showbiz, Inc., has issued eight-year bonds with a coupon of 5.78 percent and semiannual coupon payments. The market’s required rate of return on such bonds is 6.25 percent. a. What is the market price of these bonds? b. If the above bond is callable after five years at an 11.7 percent premium on the face value, what is the expected return on this bond?
Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 10% (annual payments). The yield to maturity on this bond when it was issued was 4%. a. What was the price of this bond when it was issued? b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? a. What was the price of this bond when it was issued? The price of this bond when it was issued was $ (Round to the nearest cent.) b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment? The price before the first payment is $. (Round to the nearest cent.) c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon…
Corso Inc. wants to raise $10 million by issuing 15-year zero coupon bonds with a face value of $1,000. Their investment banker informs them that investors would use a 11.25% discount rate on such bonds. At what price would these bonds sell in the market place assuming semiannual compounding? How many bonds would the firm have to issue to raise $10 million?
Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of 1000, and a coupon rate of 7.8% (annual payments). The yield to maturity on this bond when it was issued was 6.2%. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? After the first coupon payment, the price of the bond will be $_____ (Round to the nearest cent.)

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