Bobcaygeon Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.3 percent, payable annually. The one-year interest rate is 6.3 percent. Next year, there is a 36 percent probability that interest rates will increase to 8.3 percent, and there is a 64 percent probability that they will fall to 4.3 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What will the market value of these bonds be if they are non-callable? (Omit $ sign in your response.) Price of the bond $ b. If the company instead decides to make the bonds callable in one year, what coupon will be demanded by the bondholders for the ponds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. Coupon rate c. What will be the value of the call provision to the company? (Omit $ sign in your response.) Call provision value $ %

Bobcaygeon Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.3 percent, payable annually. The one-year interest rate is 6.3 percent. Next year, there is a 36 percent probability that interest rates will increase to 8.3 percent, and there is a 64 percent probability that they will fall to 4.3 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What will the market value of these bonds be if they are non-callable? (Omit $ sign in your response.) Price of the bond $ b. If the company instead decides to make the bonds callable in one year, what coupon will be demanded by the bondholders for the ponds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. Coupon rate c. What will be the value of the call provision to the company? (Omit $ sign in your response.) Call provision value $ %

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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One year ago, Henderson Honey issued a 10-year bond for $1,000. The bond's coupon rate of interest is 6 percent, and interest is paid annually. The current value of the bond is $941. What are the current yield and capital gains yield Henderson's bondholders earned during the year? Do not round intermediate calculations. Round your answers to one decimal place. Use a minus sign to enter a negative value, if any. Current yield: _____ % Capital gains yield: _____ % What is the bond's yield to maturity today? Do not round intermediate calculations. Round your answer to one decimal place. _____ %
Today is the 10th January 2023. You want to buy a Floating Rate Note (FRN) that matures on the 10th July 2027 and pays an annual coupon equal to LIBOR. Compute the fair price of the note. Use the data in Table 1. The LIBOR rate at selected dates are showed in Table 3. Please show your calculations. Discuss your result. Rates are continuously compounded- see attached image
Setrakian Industries needs to raise $69.5 million to fund a new project. The company will sell bonds that have a coupon rate of 5.76 percent paid semiannually and that mature in 20 years. The bonds will be sold at an initial YTM of 6.43 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds? (Round your intermediate calculations to two decimal places and final answer to the nearest whole number.) 2. 3 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Effective Annual Interest Rate Bond Pricing +) Ready
Chamberlain Co. wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 9 percent coupon bonds on the market that sell for $1,070, make semiannual payments, and mature in 15 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %
An investment bank sells securities under a repurchase agreement for $800.438 million and buys them back in 7 days for $800.568 million. What is the repo's single payment yield?Report your answer in % to the nearest 0.01%;
The current one-year T-bill rate is .50 percent and the expected one-year rate 12 months from now is 1.38 percent. According to the unbiased expectations theory, what should be the current rate for a two-year Treasury security? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate= %
The Wall Street Journal reports that the rate on 3-year Treasury securities is 1.50 percent and the rate on 5- year Treasury securities is 2.45 percent. According to the unbiased expectations theory, what does the market expect the 2-year Treasury rate to be three years from today, E(3/2)? (Do not round intermediate calculations and round your answer to 2 decimal places.) Treasury rate %
Please correct and not handwritten please, you may even use excel but explain.
Suppose that the coupon rate for a TIPS is 5%. Suppose further that an investor purchases $10,000 of par value (initial principal) of this issue today and that the annual inflation rate is 3.5%. 1. What is the (inflation-adjusted) dollar coupon interest that will be paid in cash at the end of the first six months? 2. What is the (inflation-adjusted) dollar coupon interest that will be paid in cash at the end of the second six months? 3. What is the inflation-adjusted principal at the end of the 2nd six months?
For the next three questions (1-3) assume what follows: Assume that you acquired a previously issued debt instrument. According to its specifications, it promised to pay $1,000 precisely in two years from the day of its original issue. At the time it was issued, investors anticipated 8.00% in interest on instruments with similar characteristics and risk level. *Note, standard rounding rules apply to all calculations! Q1. What price did you have to pay for this security - under assumption that you acquired it in a secondary market precisely three months after its original issuing, and taking into account that at the time of your acquisition investors anticipated to earn 10.00% in interest on securities with similar features and risk characteristics? A). $857.34 B). $846.37 3000K AS
The Wall Street Journal reports that the rate on four-year Treasury securities is 2.1 percent and the rate on five-year Treasury securities is 2.7 percent. According to the unbiased expectations hypotheses, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
What are some actions that stockholders can take to ensure that management’s and stockholders’ interests are aligned?

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