Cardinal Mania is financing a new investment project by issuing five-year bonds. Each bond has the face value of $1,000, and each bond pays out a $25 coupon each year (annual coupon.) Cardinal Mania plans to issue 1000 such bonds to raise the required funding of $870,000. Please answer the following questions: A. Calculate the yield to maturity and the current yield of this bond. B. Your tax rate is 20%, and the bond from Cardinal Mania is not tax-exempt. Suppose you can also invest in a five-year tax-exempt municipal bond with a yield of 3%. Would you buy the Cardinal Mania bond or the municipal bond? C. What would the holding period return rate be if you hold the Cardinal Mania bond for two years before selling it at par?

Cardinal Mania is financing a new investment project by issuing five-year bonds. Each bond has the face value of $1,000, and each bond pays out a $25 coupon each year (annual coupon.) Cardinal Mania plans to issue 1000 such bonds to raise the required funding of $870,000. Please answer the following questions: A. Calculate the yield to maturity and the current yield of this bond. B. Your tax rate is 20%, and the bond from Cardinal Mania is not tax-exempt. Suppose you can also invest in a five-year tax-exempt municipal bond with a yield of 3%. Would you buy the Cardinal Mania bond or the municipal bond? C. What would the holding period return rate be if you hold the Cardinal Mania bond for two years before selling it at par?

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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Silvia is thinking about investing money into a bond to diversify her investments. Company X issued 12 bonds at a face value of $43500 and a 17.5% nominal interest rate paid semiannually to raise capital for an upcoming factory expansion. The face value of the bond is $43500. The bond is a 10 year bond. As the bond was issued, the current nominal interest rate in the market is 7.0% compounded monthly. What is the maximum price Silvia should be pay for a single bond from company X?
We are planning to purchase a 6% bond with a face value of $1000 that pays interest semi-annually. The savings account interest rate is 20 %. The bond matures in five years. PW of coupons is
Kids Hospital needs to raise $100 million to pay for a new addition to its children’s rehabilitation unit. Kids planned to sell an issue of 20-year bonds that will pay interest twice each year with a coupon rate of interest of 6.25%. Between the time they printed the bonds with the 6.25% coupon rate and the date they were sold, interest rates rose from 6.25% to 6.5%. How much will they receive when they issue the bonds?
You purchase a 20-year bond that has a par value of $1,000 and pays an annual coupon of $100 ($50 every six months). The yield to maturity was 6.0 percent when you purchased this bond. Now, right after you purchased this bond, the yield (reinvestment rate) went up to 13.0 percent (6.5 percent every six months). Determine your realized compounded yield if you hold this bond for 10 years, then sell it, and reinvestment rates stay at 13.0 percent for the entire 10-year period. The yield-to-maturity when you sell the bond is also 13.0 percent. Enter your answer in decimal format, to four decimal places. For example, if your answer is 3.11%, enter "0.0311". Note that Canvas will delete trailing zeros, if entered.
The Moonlight Mile Corporation wants to issue $1,000,000 of new bonds. Their bonds will have a coupon rate of 8% paid semiannually, will have 30 years to maturity, will have a par value of $1,000, and have a yield to maturity of 7%. How many bonds should Moonlight Mile sell in order to raise $1,000,000
Bob uses 19481 to purchase a 10-year par-value bond (i.e. redeems at face-value). Coupons are paid out annually (end of the year) and each coupon is equal to 2% of the face-value of the bond. If each coupon payment is invested into an account that earns an effective annual interest rate of 2.4%, then what is the face-value of the bond if Bob realizes an overall yield of 3.36% per year effective over the 10 year period? Give your answer rounded to the nearest whole number (i.e. X).
You have just purchased 10 municipal bonds, each with a $1,000 par value, for $9,500. You purchased them immediately after the previous owner received semiannual coupon payments. The bond rate is 6.6% per year pay able semiannually. You plan to hold the bonds for 5 years, selling them immediately after you receive the coupon payment. If your desired nominal yield is 12% per year compounded semiannually, what will be your minimum selling price for the bonds?
Jimmy has a bond with a $1,000 face value and a coupon rate of 8.25% paid semiannually. It has a five-year life. If investors are willing to accept a 12 percent rate of return on bonds of similar quality, what is the present value or worth of this bond? Show your work. What is the impact of paying interest semi-annually rather than annually? Explain.
Rivera Inc. is considering the issuance of $500,000 face value, ten-year term bonds. The bonds will pay 10% interest each December 31. The current market rate is 10%; therefore, the bonds will be issued at face value. I need help calculating the issue price of the bonds given interest is paid annually but that the market rate of interest is 8%; the nominal rate is still 10%.
Suppose your company needs to raise $36.9 million and you want to issue 24-year bonds for this purpose. Assume the required return on your bond issue will be 9.4 percent, and you’re evaluating two issue alternatives: a 9.4 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. Both bonds would have a face value of $1,000. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios.
We are planning to purchase a 6% bond with a face value of $1000 that pays interest semi-annually. The savings account interest rate is 20 %. The bond matures in five years. PW of the face values is
The present worth of a $10,000 municipal bond due 6 years from now is $11,000. If the bond interest is payable quarterly and the interest rate used in discounting the cash flow is 8% per year compounded quarterly, what is the bond coupon rate b per year?

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