Consider the following three bond quotes: a Treasury note quoted at 98.84, a corporate bond quoted at103.10, and a municipal bond quoted at 101.75. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what are the prices of these three bonds indollars?

Bonds are debt instruments issued by entities like companies and government entities like…

Answered: Consider the following three bond…

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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A company issues a bond with a par value of $500,000 and a contract rate of 5%. Explain the concept of market rate. Why would a company issue a bond at a discount or a premium? How is bond price impacted? If the bond is issued at a discount or a premium, does it impact the interest or principal paid? Why or why not? (Answer in 5-10 sentences)
The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. Year One-Year Bond Rate Multlyear Bond Rate 1 2.00% 2.00% 2 5.00% 5.00% 6.00% 7.00% 7.00% 9.00% 9.00% 11.00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places) 111 = 121= ly= 141. = 151 135 %
Currently, a one-year Treasury bill is yielding 2.7 percent. Company F's three-year bond has a yield equal to 5.3 percent, and its seven-year bond has a yield equal to 6.9 percent. Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or longer has a maturity risk premium (MRP). Except for their terms to maturity, the characteristics of the bonds are the same. Compute the annual MRP associated with the bonds. Round your answer to one decimal place. _____ % Compute the default risk premium (DRP) associated with the bonds. Round your answer to one decimal place. _____ %
Harold Reese must choose between two bonds: Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.Bond Z pays $60 annual interest and has a market value of $870. It has five 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 X Bond Z b. Which bond should he select based on your answers to part a? multiple choice 1 Bond X Bond Z 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 X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do…
Consider a one-year discount bond that has a present value of P1,500. If the rate of discount is 4 percent, the future value of the bond (the amount the bond pays in one year) is * P1,560.00 P1,540.00 P1,440.00 P1,442.31
The Wall Street Journal reports that the current rate on 8-year Treasury bonds is 5.85 percent, the rate on a 15-year Treasury bond is 6.25 percent, and the rate on a 15-year corporate bond issued by MHM Corp. is 7.35 percent. Assume that the maturity risk premium is zero. If the default risk premium and the liquidity risk premium on the 8-year corporate bond issued by MHM Corp. are the same as those on the 15-year corporate bond, calculate the current rate on MHM Corp.'s 8-year corporate bond.
Currently, a one-year Treasury bill is yielding 3.8 percent. Company F's three-year bond has a yield equal to 5.1 percent, and its seven-year bond has a yield equal to 5.9 percent. Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or longer has a maturity risk premium (MRP). Except for their terms to maturity, the characteristics of the bonds are the same. Compute the annual MRP associated with the bonds. Round your answer to one decimal place. % Compute the default risk premium (DRP) associated with the bonds. Round your answer to one decimal place. %
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation) The 8-year $1,000 par bonds of Vail Inc pay 14 percent interest. The market's required yield to maturity on a comparable-risk bond is 10 percent. The current market price for the bond is $1,110. a. Determine the yield to maturity. b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond? c. Should you purchase the bond at the current market price? COLLE a. What is your yield to maturity on the Vail bonds given the current market price of the bonds? % (Round to two decimal places.)
which of the following bonds would you expect to have the highest yield? 1. 10-year US treasury bond 2. 1-year US treasury bond 3. 10-year corporate bond 4. 5-year municipal bond 5. 5-year US treasury bond
A corporate bond matures in five years. This bond’s credit spread over comparable maturity Treasury Bonds is 3.25%. Treasury bond yields are currently 2.125%, 4.375%, and 6.250% for 2-year, 5-year, 10-year maturity bonds, respectively. What is the cost of debt for the firm which issued the bond?
Markway Inc. is contemplating selling bonds. The issue is to be composed of 750 bonds, each with a face amount of $800. Required: 1. Calculate how much Markway is able to borrow if each bond is sold at a premium of $30. 2. Calculate how much Markway is able to borrow if each bond is sold at a discount of $10. 3. Calculate how much Markway is able to borrow if each bond is sold at 92% of par. 4. Calculate how much Markway is able to borrow if each bond is sold at 103% of par. 5. Assume that the bonds are sold for $775 each. Prepare the entry to recognize the sale of the 750 bonds. Record issuance of bonds at discount 6. Assume that the bonds are sold for $950 each. Prepare the entry to recognize the sale of the 750 bonds. Record issuance of bonds at premium
For a one year bond of $2,300 at a simple interest rate of 10% per year, find the semiannual interest payment and the total interest earned over the life of the bond. The semiannual interest on the bond is s (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.) The total interest on the bond is $. (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.)

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