LO6 7-1. (Bond valuation) Bellingham bonds have an annual coupon rate of 8 percent and MyLab a par value of $1,000 and will mature in 20 years. If you require a return of 7 percent, what price would you be willing to pay for the bond? What happens if you pay more for the bond? What happens if you pay less for the bond? 7-2. (Bond valuation) Flora Co.'s bonds, maturing in 7 years, pay 4 percent interest on a $1,000 face value. However, interest is paid semiannually. If your required rate of return is 5 percent, what is the value of the bond? How would your answer change if the interest were paid annually? 7-3. (Bond valuation) You own a 20-year, $1,000 par value bond paying 7 percent interest annually. The market price of the bond is $875, and your required rate of return is 10 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should you sell the bond or continue to own it? 7-4. (Bond valuation) Calculate the value of a bond that will mature in 14 years and has a $1,000 face value. The annual coupon interest rate is 5 percent, and the investor's required rate of return is 7 percent.
LO6 7-1. (Bond valuation) Bellingham bonds have an annual coupon rate of 8 percent and MyLab a par value of $1,000 and will mature in 20 years. If you require a return of 7 percent, what price would you be willing to pay for the bond? What happens if you pay more for the bond? What happens if you pay less for the bond? 7-2. (Bond valuation) Flora Co.'s bonds, maturing in 7 years, pay 4 percent interest on a $1,000 face value. However, interest is paid semiannually. If your required rate of return is 5 percent, what is the value of the bond? How would your answer change if the interest were paid annually? 7-3. (Bond valuation) You own a 20-year, $1,000 par value bond paying 7 percent interest annually. The market price of the bond is $875, and your required rate of return is 10 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should you sell the bond or continue to own it? 7-4. (Bond valuation) Calculate the value of a bond that will mature in 14 years and has a $1,000 face value. The annual coupon interest rate is 5 percent, and the investor's required rate of return is 7 percent.
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
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Transcribed Image Text:LO6 7-1. (Bond valuation) Bellingham bonds have an annual coupon rate of 8 percent and
MyLab
a par value of $1,000 and will mature in 20 years. If you require a return of 7 percent,
what price would you be willing to pay for the bond? What happens if you pay more
for the bond? What happens if you pay less for the bond?
7-2. (Bond valuation) Flora Co.'s bonds, maturing in 7 years, pay 4 percent interest on
a $1,000 face value. However, interest is paid semiannually. If your required rate of
return is 5 percent, what is the value of the bond? How would your answer change if
the interest were paid annually?
7-3. (Bond valuation) You own a 20-year, $1,000 par value bond paying 7 percent
interest annually. The market price of the bond is $875, and your required rate of
return is 10 percent.
a. Compute the bond's expected rate of return.
b. Determine the value of the bond to you, given your required rate of return.
c. Should you sell the bond or continue to own it?
7-4. (Bond valuation) Calculate the value of a bond that will mature in 14 years and
has a $1,000 face value. The annual coupon interest rate is 5 percent, and the investor's
required rate of return is 7 percent.
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