Excel Activity: Bond ValuationClifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds:• Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value.• Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value.• Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value.Each bond has a yield to maturity of 10%. a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par.Bond A is selling atbecause its coupon rate isthe going interest rate.Bond B is selling atbecause its coupon rate isthe going interest rate.Bond C is selling atbecause its coupon rate isthe going interest rate.b. Calculate the price of each of the three bonds. Round your answers to the nearest cent.Price (Bond A): $Price (Bond B): $Price (Bond C): $c. Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two decimal places.Current yield (Bond A):Current yield (Bond B):Current yield (Bond C):d. If the yield to maturity for each bond remains at 10%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent.Price (Bond A): $Price (Bond B): $Price (Bond C): $%%%

Par value: Par value means current value of the bond will be equal to redeemable value of the bond.…

Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: • Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 10%.

Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: • Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 10%.

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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Suppose your company needs to raise $10 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 9 percent, and you’re evaluating two issue alternatives: a 9 percent annual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. How many of the coupon bonds would you need to issue to raise the $10 million? How many of the zeroes would you need to issue? In 30 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes? Based on your answers in (a) and (b), why would you ever want to issue the zeroes? To answer, calculate the firm’s after tax cash outflows for the first year under the two different scenarios. Assume the IRS amortization rules apply for the zero coupon bonds.

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