Problem 10-1 (Algo) Bond value [LO10-3]The Lone Star Company has $1,000 par value bondsoutstanding at 9 percent interest. The bonds will maturein 25 years. Use Appendix B and Appendix D for anapproximate answer but calculate your final answerusing the formula and financial calculator methods.Compute the current price of the bonds if the presentyield to maturity is.Note: Do not round intermediate calculations. Roundyour final answers to 2 decimal places. Assumeinterest payments are annual.Answer is complete but not entirely correct.Bond Pricea. 6 percent$1,384.71b. 9 percent$1,012.05 xc. 13 percent$EA726.20 x

The problem involves the valuation of bonds. Bond valuation is a technique for determining the…

Answered: Problem 10-1 (Algo) Bond value [LO10-3]…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 9P: Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both...

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ices The Florida Investment Fund buys 98 bonds of the Gator Corporation through a broker. The bonds pay 12 percent annual interest. The yield to maturity (market rate of interest) is 14 percent. The bonds have a 20-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Using an assumption of semiannual interest payments: a. Compute the price of a bond. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Price of the bond b. Compute the total value of the 98 bonds. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Total value
Need help with C Approximate yield to maturity An investor must choose between two bonds: Bond A pays $90 annual interest and has a market value of $815. It has 15 years to maturity. Bond B pays $81 annual interest and has a market value of $700. It has eight 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 A11.04% Bond B11.57% 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 A is 11.51 percent. What is the approximate yield to maturity on Bond B? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2…
Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent. Bond L: $ Bond S: $ What will be the value of each of these bonds when the going rate of interest is 10%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent. Bond L: $ Bond S: $ What will be the value of each of these bonds when the going rate of interest is 13%? Assume that there is only one more interest payment to be made on Bond S. Do not round intermediate calculations. Round your answers to the nearest cent.…
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Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both bonds pay 100 annual interest plus 1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S. b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
a. Reset the Data Section to its initial values. The price of this bond is 1,407,831. What would it be if there were only 9 or 8 years to maturity? Use the worksheet to compute the bond issue prices and enter them in the spaces provided. Bond issue price (9 years to maturity) __________________ Bond issue price (8 years to maturity) __________________ b. Compare these prices to the bond-carrying values found in the effective interest amortization schedule you originally printed out in requirement 3. Explain the similarity. c. Click the Chart sheet tab. The chart presented shows the price behavior of this bond based on years to maturity. Explain what effect years to maturity has on bond prices. Check your explanation by trying 8% as the effective rate (cell E10) and clicking the Chart sheet tab again. Also try 9%. When the assignment is complete, close the file without saving it again. Worksheet. Modify the BONDS3 worksheet to accommodate bonds with up to 20-year maturity. Use your new model to determine the issue price and amortization schedules of a 2,000,000, 18-year, 10% bond issued to yield 9%. Preview the printout to make sure that the worksheet will print neatly, and then print the worksheet. Save the completed file as BONDST. Hint: Expand both amortization schedules to 20 years. Expand the scratch pad to 20 years. Modify FORMULA1 in cell F17 to include the new ranges. Chart. Using the BONDS3 file, prepare a line chart that plots annual interest expense over the 10-year life of this bond under both the straight-line and effective interest methods. No Chart Data Table is needed. Put A23 to A32 in the Label format and then select A23 to A32, D23 to D32, and B40 to B49 as a collection. Enter all appropriate titles, legends, formats, and so forth. Enter your name somewhere on the chart. Save the file again as BONDS3. Print the chart.

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