Bond Valuation - You are examining three bonds with a par value of $ 1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest Rates (or the market discount rate) changed. The three bonds are: • Bond A — 3 years left to maturity that pays 10% per year compounded semiannually • Bond B — 7 years left to maturity that pays 10% per year compounded semiannually • Bond C — 20 years lest to maturity that pays 10% per year compounded semiannually What would be the value of the bonds if the market discount rate were : A. 10% per year compounded semiannually? B. 4% per year compounded semiannually? C. 16% per year compounded semiannually? D. What observations can you make about these results?

Bond Valuation - You are examining three bonds with a par value of $ 1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest Rates (or the market discount rate) changed. The three bonds are: • Bond A — 3 years left to maturity that pays 10% per year compounded semiannually • Bond B — 7 years left to maturity that pays 10% per year compounded semiannually • Bond C — 20 years lest to maturity that pays 10% per year compounded semiannually What would be the value of the bonds if the market discount rate were : A. 10% per year compounded semiannually? B. 4% per year compounded semiannually? C. 16% per year compounded semiannually? D. What observations can you make about these results?

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter11: Bond Pricing And Amortization (bonds)

Section: Chapter Questions

Problem 3R

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Need help with C Approximate yield to maturity An investor must choose between two bonds: Bond A pays $90 annual interest and has a market value of $815. It has 15 years to maturity. Bond B pays $81 annual interest and has a market value of $700. It has eight years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Current Yield Bond A11.04% Bond B11.57% c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.51 percent. What is the approximate yield to maturity on Bond B? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2…
B. Directions: Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of P100,000 and a stated rate of 12%. Bond B has a face value of P100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has the greatest interest rate risk? 2. Consider two bonds. Bond X has a face value of P100,000 and five years remaining to maturity. Bond Y has a face value of P100,000 and ten years remaining to maturity. Both bonds have the same stated rate of 12%. Which bond has the greatest interest rate risk?
(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A-a bond with 4 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond B-a bond with 11 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond C-a bond with 19 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 8 percent per year compounded semiannually? b. 6 percent per year compounded semiannually? c. 17 percent per year compounded semiannually? d. What observations can you make about these results? G a. If the market discount rate were 8 percent per year compounded…
What are the steps and explanation for determining the current value of BondB that matures in 2 years and it has the same interest rate (yield) as Bond A. BondA matures in 1 year, has a current price (PV) of $800 and a face value (FV) of $1000.
(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A—a bond with 3 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond B—a bond with 7 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond C—a bond with 20 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were 6 percent per year compounded semiannually? 3 percent per year compounded semiannually? 9 percent per year compounded semiannually? What observations can you make about these results?
(Valuing bonds) A 14-year, $1000 par value Fingen bond pays 9 percent interest annually. The market price of the bond is $1100, and the market's required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond?
Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 8 percent interest annually and have 15 years until maturity. You can purchase the bond for $1,075. 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 6 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%. (Round to two decimal places.) Part 2 b. You ▼ should should not purchase the bonds because your yield to maturity on the Saleemi bonds is ▼ greater less than the one on a comparable risk bond. (Select from the drop-down menus.)
Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation) Fingen's 16-year,1000 $ par value bonds pay 13 percent interest annually. The market price of the bonds is $1070 and the market's required yield to maturity on a comparable-risk bond is 14 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond? a. What is your yield to maturity on the Fingen bonds given the market price of the bonds? % (Round to two decimal places.)
Exercise: Dirty/cleanPrice calculation A bond has face value of $1000. The bond’s yield to maturityis 6% andthe annual coupon rate is 8% with semiannual coupon payments.The maturity of the bond is 5years. The bond was issued on 1/1/2017, and one bought on 4/1/2018. Answer the following three questions: a.What is the dirty price of the bond? b.What is the accrual interest of the bond? c.What is its clean price?
(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 12 percent interest annually and have 11 years until maturity. You can purchase the bond for $945. 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 14 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%. (Round to two decimal places.)
Bond Valuation-Semiannual Interest: Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond Per Value Coupon Interest Rate Years to Maturity Required stated annaul return A $1,000 9% 9 11% B 500 13 20 12 C 500 12 5 15 The value of bond A is? The value of Bond B is? The value of Bond C is? Remember to round all answers to the nearest cent.
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