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Question content area bottom
Part 1
Price of the bond is the PV of coupons and par value discounted at the yield.
Step by step
Solved in 3 steps
- Pharoah Information Systems management is planning to issue 10-year bonds. The going market yield for such bonds is 8.435 percent. Assume that coupon payments will be made semiannually. Management is trying to decide between issuing an 8 percent coupon bond or a zero coupon bond. Pharoah needs to raise $1 million.Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 5.09% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard and Poor's. However, due to recent financial difficulties at the company, Standard and Poor's is warning that it may downgrade Andrew Industries bonds BBB. Yields on A-rated, long-term bonds are currently 4.59%, and yields on BBB-rated bonds are 4.99%. a. What is the price of the bond if Andrew maintains the A rating for the bond issue? b. What will the price of the bond be if it is downgraded?cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 6 percent, how much will cullumber pay to buy back its current outstanding bonds? Assume face value is $1000.
- (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.)To make its bond offering attractive to investors, Creamy Crisp is attaching warrants. The bonds will have a 30-year maturity and semi-annual interest payments. Each bond will come with 15 warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.00. A similar straight-debt issue would require a 9% per year yield. What annualized coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000? 7.64% per year O 3.77% per year O 3.58% per year O 7.55% per year O 8.42% per year 0730 4Bonaqua Alison Corporation Limited is planning to issue 10-year bonds with a face value of $1,000. The current market rate for similar bonds is 3.5%. Assume that coupon payments will be semi-annual. The company is trying to decide between issuing a 2.8% coupon bond or a zero coupon bond. The company needs to raise $2.5 million. a. What will be the price of the 2.8% coupon bonds? b. How many coupon bonds would have to be issued? c. Is the bond selling at a premium and why? d. What will be the price of the zero coupon bonds?
- (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.)
- Andrew Industries is contemplating issuing a 30-vear bond with a coupon rate of 7.13% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.49%, and yields on BBB-rated bonds are 6.87%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded? a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? If Andrew maintains the A rating for the bond issue, the price of the bond is S. (Round to the nearest cent.) b. What will be the price of the bond if it is downgraded? If it is downgraded, the new bond's price will be $. (Round to the nearest cent.)Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $100 and is currently selling for $900. Airborne is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Yield on new issue :(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 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 $ ______
