Yesterday, John bought a ten-year, $50,000 coupon bond with an annual rate of 5% compounded semiannually. Today, however, the rate on the same bond is 4.625%. Which of the following is true? A. John's bond is worth the same today as yesterday B. There is not enough
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- A P5000.00, 10-year, 8% bond that pays interest annually was purchased four years ago with a discount of P152.00. If the bond is sold today for P4750.00, determine a) the rate of return realized by the owner; (Ans. 7.8%) b) the rate of return realized by the purchaser if he holds on to the bond until maturity. (Ans. 9.1%)A $1,000 par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has 5 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Compute the current price of the bond using an assumption of semiannual payments. If Mr. Robinson initially bought the bond at par value, what is his percentage loss (or gain)? Now assume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will her percentage return be? Although the same dollar amounts are involved in parts b and c,explain why the percentage gain is larger than the percentage loss.es Jiminy's Cricket Farm issued a 30-year, 5.7 percent semiannual bond 3 years ago. The bond currently sells for 111 percent of its face value. The company's tax rate is 25 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt % b. Aftertax cost of debt %
- The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 11 years until maturity. You can purchase the bond for $1,155. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 3 percent?A bond matures in 20 years, at which time it pays the owner $1,000. It also pays $70 at the end of each of the next 20 years. If similar bonds are currently yielding 7%, what is the market value of the bond? Select one:cannot be determined from the information givenexactly $1,000under $1,000over $1,000Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 percent. a. What is the pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debt
- Harold Reese must choose between two bonds: Bond X pays $85 annual interest and has a market value of $780. It has 12 years to maturity.Bond Z pays $95 annual interest and has a market value of $800. It has five 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.) b. Which bond should he select based on your answers to part a? multiple choice 1 Bond Z Bond X 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 X is 11.90 percent. What is the approximate yield to maturity on Bond Z? 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…A bond pays $50,000 per year and has a face value of $500,000 at theend of 8 years when it has to be redeemed. If its current discounted priceis $390,000, what true interest could be earned on the bond? Ans. (14.9%)1. You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also paid $75 in interest per year, which you reinvested in the bond. Calculate the real ized rate of return earned on this bond. 2. Refer again to the bond information in Problem 1. You expect to hold the bond for three more years, then sell it for $990. If the bond is expected to continue paying $75 per year over the next three years, what is the expected rate of return on the bond during this period? (LG 3-1)
- On July 1, Somers Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12 %. The bonds paid interest semi-annually. A. Assuming the bonds sold at 59.55, what was the selling price of the bonds? B. Explain why the cash received from selling this bond is different from the $200,000 face value of the bond. Investors can earn a higher rate ✓ in other similar bonds so the bond sells at a discountHarold Reese must choose between two bonds: Bond X pays $92 annual interest and has a market value of $895. It has 10 years to maturity. Bond Z pays $82 annual interest and has a market value of $920. It has four 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.) Bond X Bond Z Bond X O Bond Z Current Yield b. Which bond should he select based on your answers to part a? % % 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 X is 10.94 percent. What is the approximate yield to maturity on Bond Z? 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…Jiminy's Cricket Farm issued a 30-year, 4.5 percent semiannual bond three years ago. The bond currently sells for 104 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debt