Builtrite needs to raise $2, 000, 000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?

Builtrite needs to raise $2, 000, 000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?

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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The ARA Corporation bonds have a coupon of 14%, pay interest semiannually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. Required: (a) How much should an investor pay for a $1,000 ARA Corporation bond? (b) Discuss reasons why an investor should choose to purchase bonds over stocks given his risk profile.
If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?
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 7.20% 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.
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Bill Magness wants to purchase ERCOT bonds which are maturing in 15 years and yielding 3.87%. These ERCOT bonds have an annual coupon rate of 4.59% and a par value of $5,000. If the ERCOT bonds pay coupons twice per year, how much will Bill Magness have to spend to purchase one ERCOT bond? Note: the next coupon will be paid in exactly 6 months. a. $5,514.90 b. $5,406.76 c. $5,677.10 d. $5,190.49 e. $5,028.29
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