(Bond valuation relationships) Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value. It matures in 20 years. The market's required yield to maturity on a comparable-risk bond is 6 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 5 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.

(Bond valuation relationships) Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000 par value. It matures in 20 years. The market's required yield to maturity on a comparable-risk bond is 6 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 5 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount 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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Sandhill Company is issuing eight-year bonds with a coupon rate of 6.8 percent and semiannual coupon payments. If the current market rate for similar bonds is 10 percent. Assume face value is $1,000. What will the bond price be? (Round intermediate calculations to 5 decimal places, e.g. 1.25145 and bond price to 2 decimal places, e.g. 15.25.) Bond price $ If company management wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 5 decimal places, e.g. 1.25145 and number of bonds to O decimal places, e.g. 5,275.) Number of bonds
(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 7 percent interest annually and have 14 years until maturity. You can purchase the bond for $915. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 7 percent? a. The yield to maturity on the Saleemi bonds is %. (Round to two decimal places.)
Tom Inc. bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65, paid semiannually. The market requires an interest rate of 6.7% on these bonds. What is the bond's price? Group of answer choices a)$1143.2 b)$780.2 c)$987.8 d)$1156.5
Harpeth Valley Water District has a bond outstanding with a coupon rate of 3.95 percent and semiannual payments. The bond matures in 23 years, with a yield to maturity of 3.71 percent, and a par value of $5,000. What is the market price of the bond? Multiple Choice $5,184.58 $5,199.39 $5,192.55 $5,183.51 $5,288.27
Calculate the Macaulay duration of a 9%, $1,000 par bond that matures in three years if the bond's YTM is 12% and interest is paid semiannually. a. Calculate this bond's modified duration. Do not round intermediate calculations. Round your answer to two decimal places. years b. Assuming the bond's YTM goes from 12% to 11.5%, calculate an estimate of the price change. Do not round intermediate calculations. Round your answer to three decimal places. Use a minus sign to enter negative value, if any. %
A Treasury bond due in 1 year has a yield of 3.5%, while a Treasury bond due in 5 years has a yield of 7.5%. A bond due in 5 years issued by High Country Marketing Corp. has a yield of 13%, while a bond due in 1 year issued by High Country Marketing Corp. has a yield of 5%. The default risk premium on the 5-year bonds issued by High Country Marketing Corp. is _________. Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 11-year, $1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $955, and the market's required yield to maturity on a comparable-risk bond is 6 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? a. What is your yield to maturity on the Waco bonds given the current market price of the bonds? % (Round to two decimal places.)
2:37 (Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 16-year, $1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $1,075, and the market's required yield to maturity on a comparable-risk bond is 5 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? Vo) 1 [ 22 | 46 ... - 41% LTE2 a. What is your yield to maturity on the Waco bonds given the current market price of the bonds? % (Round to two decimal places.) ||| = O
(Bond valuation relationships) Arizona Public Uslities issued a bond that pays $70 in interest, with a $1,000 par value. It matures in 30 years. The market's required yield to maturity on a comparable-sk bond is 8 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (4) decreases to 7 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 30 years. Recompute your answers in parts a and b e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds. GALLE a. What is the value of the bond if the marker's required yield to maturity on a comparable-risk bond is 8 percent? $ 887 42 (Round to the nearest cent.) b. () What is the value of the bond if the market's required yield…
5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 4 percent. Which of the following statements is correct if the market yield decreases to 2 percent? 1. Bond A will increase in value by a greater percentage than Bond B. 2. Bond B will increase in value by a greater percentage than Bond A. 3. Both bonds would decrease in value by 8.27 percent. 4. Bond B will decrease in value by a greater percentage than Bond A. 5. Both bonds will increase in value by 8.27 percent.
Elliot Enterprises' bonds currently sell for $1,150; have an 11% coupon interest rate and a $1,000 par value, pay interest annually, and have18 years to maturity. (i) Calculate the bonds' current yield (ii) Calculate the bonds' yield to maturity (YTM). (iii) Compare the YTM calculated in part (ii) to the bonds' coupon interest rate and current yield calculated in part (i). Use a comparison of the bonds' current price and par value to explain these differences.
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