PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
7th Edition
ISBN: 9780357033647
Author: Billingsley
Publisher: CENGAGE L
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Textbook Question
Chapter 12, Problem 8FPE
Describe and differentiate between a bond’s (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, $1,000 par
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a.) what are the main characteristics of a bond? Provide examples of different types of bonds in terms of coupons and maturity.
b.) explain the difference between "coupon rate" and "yield to maturity ". Show using examples, how changes in the coupon rate and yield to maturity affects the bond price.
c.) You are asked to put a value on a bond which promises eight annual coupon of £50 and will repay its face value of £1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9per cent.
i.) How much is this bond worth?
ii.) You are offered the bond for a price of £755.5. What yield to maturity does this represent?
d.) You believe that next year XYZ plc will pay a dividend of £2 on its common stock. There after you expect dividend to grow at a rate of 4% a year in perpetuity. If you require a return of 12% on your investment.
i.) How much should you be prepared to pay for the stock?
ii.) Assuming that the expected stock price at the end of…
Which of the following is true about a bondholder?
At the beginning of the life of the bond, the firm will pay a price for a bond and will then receive coupon payments throughout the life of the bond and receive the return of the principal amount at maturity
At the beginning of the life of the bond, the firm will receive a price for a bond and will then pay coupon payments throughout the life of the bond and pay the return the principal amount at maturity
At the beginning of the life of the bond, the bondholder will pay a price for a bond and will then receive coupon payments throughout the life of the bond and receive the return of the principal amount at maturity
At the beginning of the life of the bond, the bondholder will receive a price for a bond and will then pay coupon payments throughout the life of the bond and pay the return the principal amount at maturity
Suppose that a bond has a yield to call (YTC) equal to 6.5 percent and a yield to maturity (YTM) equal to 6.3 percent. Explain the meanings of these numbers to bond investors.
Chapter 12 Solutions
PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
Ch. 12 - Describe the various types of risks to which...Ch. 12 - Prob. 2LOCh. 12 - Prob. 3LOCh. 12 - Prob. 4LOCh. 12 - Prob. 5LOCh. 12 - Prob. 6LOCh. 12 - What makes for a good investment? Use the...Ch. 12 - An investor is thinking about buying some shares...Ch. 12 - The price of Outdoor Designs, Inc. is now 85. The...Ch. 12 - The Castle Company recently reported net profits...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is a bond's yield to maturity (YTM)? A. The expected return you'll earn if the bond issuer defaults B. The return you have made if you sell the bond today C. The same as the bond's coupon rate D. The return you'll earn if you hold the bond to maturity and yields stay the samearrow_forwardConsider a $1,000-par-value Bond with the following characteristics: a current market price of $761, 12 years until maturity, and an 8% coupon rate. We want to determine the discount rate that sets the present value of the bond’s expected future cash-flow stream to the bond’s current market price. You are required to determine the discount rate that equates the present value of the bond?arrow_forwardTo calculate the price of a coupon bond, the following information is required: Select one: O A. Face value of the bond, yield to maturity rate, maturity date and inflation rate. O B. Face value of the bond, yield to maturity rate, maturity date, coupon rate and inflation. O C. Face value of the bond, inflation rate, coupon rate and coupon rate. O D. Face value of the bond, yield to maturity rate, maturity date and coupon rate.arrow_forward
- Use the following table to find the bond value: a. Price the bonds from the above table with annual coupon payments. b. Price the bonds from the above table with semiannual coupon payments.arrow_forwardDescribe in detail the key features of a bond (face value, maturity, coupon rate, coupon, yield to maturity, current yield). What are the cash flows associated with a bond? What is a discount bond? Premium bond? Par bond? How does the price of a bond vary in relationship to market rates?arrow_forwardThe total annual return on a bond is indicated by a bond's: Question 47 options: Current yield Yield to maturity Coupon rate Capital gains yieldarrow_forward
- Which of the following is TRUE about a bond's face (par) value? Select one: a. the face value of a bond is the same as the bond's price b. the par value of a bond is the interest payment c. the face value of a bond changes when yields change d. the value of a bond will always be equal to par at maturity.arrow_forwardPlease see attached. Definitions: Yield to maturity (YTM) is the return the bond holder receives on the bond if held to maturity.arrow_forwardExplain the relation between current and future expected one-year bond yields and the yield on a five-year bond.arrow_forward
- Which of the following variables are required to calculate the value of a bond? More than one answer may be correct. Multiple select question. Price at the time of bond issue Par value Number of bondholders Time to maturity Market rate Coupon ratearrow_forwardYield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Coupon interest rate 12% Yield to maturity 6% What is the price of the bond in relation to its par value? (Select the best answer below.) O A. The bond sells at a premium to par. OB. The bond sells at a discount to par. O C. The bond sells at par.arrow_forwardPls help ASAParrow_forward
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