HMK Enterprises would like to raise $10.0 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1,000 and a coupon rate of 6.50%(annual payments). The following table summarizes the yield to maturity for five-year (annual-payment) coupon corporate bonds of various ratingsa. Assuming the bonds will be rated AA, what will be the price of the bonds?b. How much of the total principal amount of these bonds must HMK issue to raise $10.0 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bondassume that all fractions are rounded to the nearest whole number)c. What must be the rating of the bonds for them to sell at par?d. Suppose that when the bonds are issued, the price of each bond is $902.79 What is the likely rating of the bonds? Are they junk bonds?a. Assuming the bonds will be rated AA, what will be the price of the bonds?The price of the bonds will be $(Round to the nearest cent.)Data table.(Click on the following icon in order to copy its contents into a spreadsheet)AAA8886.19%6.99%RatingYTMAA6.31%6.59%687.51%- X

Investment amount $10 millionCoupon rate: 6.59%Face value: $1,000YIELD:AAA: 6.19%AA: 6.31%A:…

Answered: HMK Enterprises would like to raise…

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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PBJ Corporation issued bonds on January 1, 2006. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2021. What is the yield to maturity for a PBJ Corporation bond on January 1, 2012 if the market price of the bond on that date is $950?I understand how to find the YtM if I were calculating for 2021, but I don't understand how to set up the equation for 2012 market price.
David Palmer identified the following bonds for investment: 1. 1) Bond A: A $1 million par, 10% annual coupon bond, which will mature on July 1, 2025. 2. 2) Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031. 3. 3) Bond C: A S1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026. The three bonds were issued on July 1, 2011. (a) If Bond B is issued at face value and both Bond Band Bond A are having the same yield to maturity (EAR) at issuance, calculate the market price of Bond A on July 1, 2011.
Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a.If the bonds are noncallable, what is the price of the bonds today? b.If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why? please show all work.
KIC Inc. plans to issue $7.2 million of bonds with a coupon rate of 16 percent paid semiannually and 36 years to maturity. The current one-year market interest rate on these bonds is 15 percent. In one year, the interest rate on the bonds will be either 18 percent or 9 percent with equal probability. Assume investors are risk neutral. a. If the bonds are non-callable, what is the price of the bonds today? (Do not round Intermediate calculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Price of the bonds $ $3,799,246.63 b. If the bonds are callable one year from today at $1,575, will their price be greater or less than the price you computed in part (a)? Greater than Less than c. If the bonds are callable one year from today at $1,575, what is the current price of the bond? (Do not round Intermediate calculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current…
McConnell Corporation has bonds on the market with 19 years to maturity, a YTM of 6.4 percent, a par value of $1,000, and a current price of $1,266.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?
ReNew Corporation raises funds to build renewable energy systems by issuing 3-year bonds with a coupon rate of 6% and a face value of $1,300. Assume that the market interest rate for a 3-year bond issued by a firm like ReNew is currently the same as the coupon rate. The price of each of these bonds is Suppose that the market interest rate for bonds that are similar to the ReNew bond has increased to 8%. The price of the ReNew bond changes to
(b) Bluechip Company has TWO (2) bonds to evaluate and below are the information:- • Bond A has coupon rate of 10 percent and par value of RM1,000. The bond duration is 7 years with yield to maturity is 8 percent annually. • Bond B with coupon rate of 6 percent and yield to maturity is 10 percent. The maturity for bond is 5 years which paid semiannually. Evaluate the purchase price of both bonds and identify its relationship with the par value.
A company is going to undertake an issue of $100 million of high yield bonds, with a maturity of 5 years. The bonds are rated BB. The coupon on the bonds is 5%, paid semi-annually. The underwriter is charging a commission of 2%. What is the effective yield on the bonds, from the company's point of view? Group of answer choices 5.46 % 7.00% 5.75% 2.73%
Cardoza issues bonds with a coupon rate of 7%, face value of $210,000, and maturity in 10 years. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Calculate the issue price of the bonds. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice $171,360. $210,000. $195,731. $225,622.
Rosh Corporation is planning to issue bonds with a face value of $860,000 and a coupon rate of 10 percent The bonds mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year (EV of $1. PV of $1. FVA of $1. and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to nearest whole dollar amount.) Required: Compute the issue (sales) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate: 10 percent. Insue price b. Case B: Market Interest rate: 8 percent apd anss c. Case C: Market interest rate: 12 percent. IPoue prce
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Serotta Corporation is planning to issue bonds with a face value of $440,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) 1. Provide the journal entry to record the issuance of the bonds January 1.

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