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 currentone-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 9percent 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 indollars. Round the final answer to 2 decimal places. Omit $ sign in your response.)Price of the bonds $ $3,799,246.63b. 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 thanLess thanc. If the bonds are callable one year from today at $1,575, what is the current price of the bond? (Do not round Intermediatecalculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.)Current price of the bondd. What is the value of the call provision to the company? (Do not round Intermediate calculations. Enter the answer in dollars.Round the final answer to 2 decimal places. Omit $ sign in your response.)Call value$

Price of a bond is the present value of coupon payments plus present value of the par value of the…

Answered: KIC Inc. plans to issue $7.2 million of…

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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Similar questions

The Shamrock Corporation has just issued a $1,000 par value zero-coupon bond with an 6% yield to maturity, due to mature 17 years from today (assume semiannual compounding). Do not round intermediate calculations. Round your answers to the nearest cent. What is the market price of the bond? $ ___ If interest rates remain constant, what will be the price of the bond in three years? $ ___ If interest rates rise to 10%, what will be the price of the bond in three years? $ ___
Chamberlain Company wants to issue new 11-year bonds for some much-needed expansion projects. The company currently has 11.4 percent coupon bonds on the market that sell for $1,038.09, make semiannual payments, and mature in 11 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Assume a par value of $1,000.
McCue Inc.’s bonds currently sell for $1,070. They pay a $120 annual coupon, have a 11-year maturity and a $1,000 par value, but they can be called in 4 years at $1,080. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels into the future. What is the difference between this bond’s YTM and its YTC? (Subtract the YTC from the YTM.)
Uliana Company wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,035, make semiannual payments, and mature in 16 years. Both bonds have a par value of $1,000. What coupon rate should the company set on its new bonds if it wants them to sell at par? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Coupon rate %
Pybus, Inc. is considering issuing bonds that will mature in 15 years with an annual coupon rate of 9%. Their par value will be $1000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 12 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 13%. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ 793 .53. Part 2 b. The price of the Pybus bonds if they receive an A rating will be $
A corporate bond with a 7.600 percent coupon has 15 years left to maturity. It has had a credit rating of BB and a yield to maturity of 9.9 percent. The firm has recently become more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 8.8 percent. (Assume interest payments are semiannual.) What will be the change in the bond's price in dollars? What will be the change in the percentage terms? Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Change in bond price $78.90 Change in bond percent %
(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 15 years with an annual coupon rate of 8 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10 percent. What will be the price of these bonds if they receive either an A or a AA rating? COUE a. The price of the Pybus bonds if they receive a AA rating will be $ 918.56. (Round to the nearest cent) b. The price of the Pybus bonds if they receive an A rating will be $ (Round to the nearest cent.)
(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 20 years with an annual coupon rate of 11 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10.5 percent. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ (Round to the nearest cent)
(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 24 years with an annual coupon rate of 9 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 12 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 13 percent. What will be the price of these bonds if they receive either an A or a AA rating? a. The price of the Pybus bonds if they receive a AA rating will be $ (Round to the nearest cent.)
(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon rate of 8 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10.5 percent. What will be the price of these bonds if they receive either an A or a AA rating? Question content area bottom Part 1 a. The price of the Pybus bonds if they receive a AA rating will be $enter your response here. (Round to the nearest cent.)
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