K corp. has an existing bond that has a par value of $1,000 and an 7% coupon rate. The issue pays interest annually and has 10 years remaining to its maturity date. Bonds of similar risk have a yield of 11%. Calculate the value of these bonds and indicate if it is a discount bond or premium bond. Regardless whether you use calculator, formula or excel function in the calculation, you are required to show the input value for each relevant TVM variables, such as N, 1, PMT, PV, FV. (Here is a sample answer for a TVM calculation: N=1, 1-2,PMT-0, PV-100, compute FV FI's value is $102 Also answer the short answer questions if there are any.)

K corp. has an existing bond that has a par value of $1,000 and an 7% coupon rate. The issue pays interest annually and has 10 years remaining to its maturity date. Bonds of similar risk have a yield of 11%. Calculate the value of these bonds and indicate if it is a discount bond or premium bond. Regardless whether you use calculator, formula or excel function in the calculation, you are required to show the input value for each relevant TVM variables, such as N, 1, PMT, PV, FV. (Here is a sample answer for a TVM calculation: N=1, 1-2,PMT-0, PV-100, compute FV FI's value is $102 Also answer the short answer questions if there are any.)

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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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…
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You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.50% Default risk premium = 1.40% Liquidity risk premium = 1.00% Maturity risk premium = 2.00% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? Note: Round your percentage answers to 2 decimal places (ie., 0.1234 should be entered as 12.34). Expected inflation premium Fair interest rate
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