Cox Media Corporation pays a 9 percent coupon rate on debentures that are due in 15 years. The current yield to maturity on bonds of similar risk is 6 percent. The bonds are currently callable at $1,220. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Find the market value of the bonds using semiannual analysis. (Ignore the call price in your answer. Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the bond

Cox Media Corporation pays a 9 percent coupon rate on debentures that are due in 15 years. The current yield to maturity on bonds of similar risk is 6 percent. The bonds are currently callable at $1,220. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Find the market value of the bonds using semiannual analysis. (Ignore the call price in your answer. Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the 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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1. (Bond Valuation Problem) A $1,000 par value bond with a coupon interest rate of 12.8 percent per year paid semiannually matures in 25 years. Draw a CF diagram corresponding to this information and then complete the table below by filling in the prices and YTMs that correspond to the given YTM’s and prices respectively. Show all the work for part D – both the PVAt and PV calculations. Then check your answer using your calculator’s TVM solver menu or function keys. PRICE YTM A. ______________ ___0%____ B. __$1,000______ __________ C. __$ 917.19_____ __________ D. ______________ ___16%____
What are the excel formulas and answers to Part A and Part B. Part A: (Left Side) KIMCHI CORPORATION's capital investment bonds have a maturity of 10 years with a face value of $1,000 and a semi-annual 10% coupon. They are callable in 3 years at $1150 and currently sell for $1,290. What is the nominal yield to maturity and the nominal yield to call? What return should investors expect to earn on these bonds. Part B: (Right Side) KIMCHI CORPORATION also has bonds with 5 years left to maturity with an annual coupon of 10%. What would be the yield to maturity at a current market price of $850? What would be the yield to maturity if the current market price would be $1,125? What would be the price of the bond to you if your cost of capital was 12%? What would be the price of the bond to you if your cost of capital was 8%?
Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…
A bond is currently selling for $1040. It pays the amounts listed in the picture at the ends of the next six years. The yield of the bond is the interest rate that would make the NPV of the bond’s payments equal to the bond’s price. Use Excel’s Goal Seek tool to find the yield of the bond.
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Bond B According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) с D YTM(%) 5.1% Years to Maturity 1 2 3 6.1 6.6 7.1 YTM (%) % % %
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 8% semlannual coupon, are callable in 4 years at $1,048.54, and currently sell at a price of $1,094.91. What are their nominal yield to maturity and their nominal yield to call? Do not round Intermediate calculations. Round your answers to two decimal places. YTM: YTC: What return should investors expect to earn on these bonds? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. -Select-
The Pioneer Petroleum Corporation has a bond outstanding with an $85 annual interest payment, a market price of $800, and a maturity date in five years. Assume the par value of the bond is $1,000. Find the following: (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, round 2 decimal places.) A) Coupon rate % B) Current yield % C) Approximate yield to maturity % D) Exact yield to maturity %
Katie Pairy Fruits Incorporated has a $2,200 23-year bond outstanding with a nominal yield of 15 percent (coupon equals 15 % × $2,200 = $330 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. Current price of the bond b. Find the present value of 3 percent x $2,200 (or $66) for 23 years at 12 percent. The $66 is assumed to be an annual payment. Add this value to $2,200. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual, Present value
Today, interest rates on 1-year T-bonds yield 1.2%, interest rates on 2-year T-bonds yield 2%, and interest rates on 3-year T-bonds yield 3.3%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment. Security& Rating Maturity Face Coupon Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 CorpA A 5 $ 1,000 8.10% $ 990.00 CorpB BB 10 $ 1,000 7.90% $ 859.88 CorpC AA 15 $ 1,000 7.00% $ 660.00
Findlay company recently issued bonds with a 20-year maturity, a 7.5% semiannual coupon, and a par value of $1,000. The going interest rate (kd, rd) is 6.0%, based on semiannual compounding. What is the bond's price? Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables
Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 11% coupon interest rates and pay annual interest. Bond A has exactly 10 years to maturity, and bond B has 20 years to maturity. a. Calculate the present value of bond A if the required rate of return is: (1) 8%, (2) 11%, and (3) 14%. b. Calculate the present value of bond B if the required rate of return is: (1) 8%, (2) 11%, and (3) 14%. c. From your findings in parts a and b, discuss the relationship between time to maturity and changing required returns. d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?

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