During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $56,000. What rate of return per year will a purchaser make if the bond coupon rate is 16% per year payable quarterly, and the bond is due 5 years from now?
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- Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.During the recession in mid-2009, homebuilder KB Home had outstanding 7-year bonds with a yield to maturity of 8.7% and a BB rating. If corresponding risk-free rates were 2.6%, and the market risk premium was 4.8%, estimate the expected return of KB Home's debt using two different methods. How do your results compare? Note: the average loss rate for unsecured debt is about 60%. See annual default rates by debt rating here and average debt betas by rating and maturity here Considering the probability of default, the expected return of the bond is %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Annual Default Rates by Debt Rating A BBB BB Rating: Default Rate: AAA AA Print 2.2% 8.0% B Average 0.0% 0.1% 0.2% 0.5% In Recessions 0.0% 1.0% 3.0% 3.0% Source: "Corporate Defaults and Recovery Rates, 1920-2011," Moody's Global Credit Policy, February 2012. Done CCC 5.5% 16.0% CC-C 12.2% 48.0% 14.1% 79.0% - X 4There is a risk of loss associated with selling bonds before the maturity date. A funds manager is holding 10-year bonds with a current value equal to the face value of $100,000. The bonds pay a fixed annual coupon of 8 per cent per annum. Interest rates for similar types of bonds increase to 9 per cent per annum. Calculate the new value of the bonds.
- A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is par—because this means that the going market interest rate is less than its coupon rate. Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.6% with semiannual payments of $43, and a par value of $1,000. The price of each bond in the issue is $1,220.00. The bond issue is callable in 5 years at a call price of $1,086.What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations. % Assuming…Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decrease from 20 to 16 percent. a. What is the bond price at 20 percent? b. What is the bond price at 16 percent? c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)Bond J has a coupon rate of 4%. Bond K has a coupon rate of 14%. Both bonds have 17 years to maturity, a par value of $1000 and a yield to maturity of 8% , and both make semi annual payments. If interest rates suddenly rise by 2%, what is the percentage price change in these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about interest rate risk of lower coupon bonds? Excel would be good. Thanks.
- Please answer fast I give you upvote.Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2…
- Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 9.00% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert Toy company pay to buy back its current outstanding bonds? (answer in terms of millions, so 1,000,000 would be 1.00) Answer Format: Currency: Round to: 2 decimal places. Enter Answer Here...Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with two years to maturity has a coupon rate of 4%. The yield to maturity. (YTM) of the bond is 8.80%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: O $776,642.92 O $913,697.55 O$1,096,437,06 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement. The T-pote described in this problem is selling at aFind the Macaulay duration and the modified duration of a 15-year, 9.0% corporate bond priced to yield 7.0%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 8.0%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 8.0%. How does this price change compare to that predicted by the modified duration? Explain the difference. The Macaulay duration is nothing years. (Round to two decimal places.) The modified duration is nothing years. (Round to two decimal places.) If market yields rose to 8.0%, the change would be nothing%. (Round to two decimal places.) Using annual compounding, the price of this bond in 1 year if rates do rise to 8.0% is $nothing. (Round to the nearest cent.) The actual percentage change in bond price is nothing%. (Round to two decimal places.) Which of the following is true? (Select the best choice below.) A.…