New Business Ventures Inc. has an outstanding perpetual bond with a 13 percent coupon rate that can be called in one year. The bond makes annual coupon payments. The call premium is set at $200 over par value. There is a 35 percent chance that the interest rate in one year will be 15 percent, and a 65 percent chance that the interest rate will be 12 percent. If the current interest rate is 13 percent, what is the current one-year market price of the bond? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) $1,033.48 x Price

New Business Ventures Inc. has an outstanding perpetual bond with a 13 percent coupon rate that can be called in one year. The bond makes annual coupon payments. The call premium is set at $200 over par value. There is a 35 percent chance that the interest rate in one year will be 15 percent, and a 65 percent chance that the interest rate will be 12 percent. If the current interest rate is 13 percent, what is the current one-year market price of the bond? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) $1,033.48 x Price

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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Dynamic Systems has an outstanding bond that has a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually. The bond has 11 years remaining until it matures. Today the going interest rate is 10 percent, and it is expected to remain at this level for many years in the future. Compute the (a) current yield and (b) capital gains yield that the bond will generate this year.
AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 11 years from now?
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1, 000. The bonds are callable at $1, 230. One year interest rates are 8 percent. There is a 60 percent probability that long-term interest rates one year from today will be 10 percent, and a 40 percent probability that they will be 8 percent. Assume that if interest rates fall the bonds will be called. What coupon rate should the bonds have in order to sell at par value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Singtel recently issued a graded investment bond. The bond has a $1,000 par value which will mature in 12 years’ time. It has a coupon interest rate of coupon of 11% and pays interest annually. As an investor, you are to determine the following: i. Calculate the value of the bond if the required rate of return is 11 percent. ii. Calculate the value of the bond if the required rate of return is 15 percent. iii. Based on the above findings in part (i) and (ii) above, and discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value. iv. Identify two possible reasons that could cause the required return to differ from the coupon interest rate.
ABC Inc. is planning to issue new annual coupon bonds with a maturity of ten years. The company outstanding (annual coupon paying) bonds have a 7.5% coupon rate and mature in ten years. They are currently selling for $1,013.03. What would the coupon rate on the new bonds have to be such that they will sell at par upon issuance?
Taussig Corp.'s bonds currently sell for $1,220. They have a 6.35% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,050. What rate of return should an investor expect to earn if he or she purchases these bonds?
Madsen Motors's bonds have 15 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 7%, and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent. $
A bond that matures in 12 years has a $ 1000 par value. The annual coupon interest rate is 12 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
New Business Ventures Inc. has an outstanding perpetual bond with a 11 percent coupon rate that can be called in one year. The bond makes annual coupon payments. The call premium is set at $140 over par value. There is a 35 percent chance that the interest rate in one year will be 13 percent, and a 65 percent chance that the interest rate will be 8 percent. If the current interest rate is 11 percent, what is the current one-year market price of the bond? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Price $
Bhuptbhai
Dynamic Systems has an outstanding bond that has a $1,000 par value and a 6 percent coupon rate. Interest is paid semiannually. The bond has 13 years remaining until it matures. Today the going interest rate is 8 percent, and it is expected to remain at this level for many years in the future. Compute the current yield. Do not round intermediate calculations. Round your answer to two decimal places. % Compute the capital gains yield that the bond will generate this year. Do not round intermediate calculations. Round your answer to two decimal places. %
Old Business Ventures Inc. has an outstanding perpetual bond with an 5.8 percent coupon rate that can be called in one year. The bonds make annual coupon payments. The call premium is set at $104 over par value. There is a 40 percent chance that the interest rate in one year will be 6.8 percent and a 60 percent chance that the interest rate will be 3.8 percent. If the current interest rate is 5.8 percent, what is the current market price of the bond? What will be the value of the call provision? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) Price of the bond Value of the call provision $ $

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