Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as the current yield on the existing bonds. V. Since interest rates have risen since the bond was first issued, the coupon rate should be set at a rate above the current coupon rate. -Select-

Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as the current yield on the existing bonds. V. Since interest rates have risen since the bond was first issued, the coupon rate should be set at a rate above the current coupon rate. -Select-

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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Absalom Energy's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 20 years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,255.60, and the yield curve is flat. Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds issued in 6 years? Do not round intermediate calculations. Round your answer to two decimal places. %
A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985. What is its yield to maturity (YTM)? Round your answer to two decimal places. % Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $
McCue Inc.'s bonds currently sell for $1,245. They pay a $80 annual coupon, have a 7-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 on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.) O 0.56% O 0.86% O 0.66% O 0.76% 0.96%
Brooks Inc.'s callable bonds are currently selling for $1,300. They pay a coupon rate of 10% annually, have 10 years to maturity, and a $1,000 par value. The earliest that the bonds can be called is 3 years from now for a call price of $1,200. What is the Yield to Cail?
4. The Tyler Energy Corporation's $1,000 par bonds currently sell for $940, mature in seven years, and have semiannual coupon payments with a 8.2% annual coupon rate. a. What is the current yield? b. What is the yield to maturity (to the nearest basis point) c. What is the horizon yield for an investor with a 4-year holding period and a reinvestment rate of 6.8% over the period. At the end of the four years, the bonds will sell to yield 8.2%. Please do it on excel.
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,209.43, and currently sell at a price of $1,365.89. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 4 years at $1,047.04, and currently sell at a price of $1,091.13. What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,211.14, and currently sell at a price of $1,370.78. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
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Find the Macaulay duration and the modified duration of a 15-year, 7.5% corporate bond priced to yield 5.5%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 6.5%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 6.5%. How does this price change compare to that predicted by the modified duration? Explain the difference.

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