Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Question
Chapter 4, Problem 10P
a)
Summary Introduction
To determine: The bond’s yield to maturity at market price $829 and $1,104.
b)
Summary Introduction
To determine: Whether person X will pay $829 for 1 bond for these bonds if he thought the appropriate rate of interest is 12%.
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Students have asked these similar questions
the following features:
• Coupon rate of interest (paid annually): 10 percent
• Principal: $1,000
• Term to maturity: 8 years
a. What will the holder receive when the bond matures?
|-Select-
b. If the current rate of interest on comparable debt is 7 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and
Appendix D to answer the question. Round your answer to the nearest dollar.
Would you expect the firm to call this bond? Why?
-Select- v, since the bond is selling for a-Select- v.
c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm
remit each year for eight years if the funds earn 7 percent annually and there is $80 million outstanding? Use Appendix C to answer the question. Round your answer to
the nearest dollar.
Yield to maturity
Bond Valuation-Semiannual Interest: Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually.
Bond
Per Value
Coupon Interest Rate
Years to Maturity
Required stated annaul return
A
$1,000
9%
9
11%
B
500
13
20
12
C
500
12
5
15
The value of bond A is?
The value of Bond B is?
The value of Bond C is?
Remember to round all answers to the nearest cent.
Chapter 4 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 4 - Short-term interest rates are more volatile than...Ch. 4 - The rate of return on a bond held to its maturity...Ch. 4 - If you buy a callable bond and interest rates...Ch. 4 - A sinking fund can be set up in one of two ways....Ch. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Current Yield for Annual Payments Heath Food...Ch. 4 - Determinant of Interest Rates
The real risk-free...Ch. 4 - Default Risk Premium A Treasury bond that matures...Ch. 4 - Prob. 6P
Ch. 4 - Bond Valuation with Semiannual Payments
Renfro...Ch. 4 - Prob. 8PCh. 4 - Bond Valuation and Interest Rate Risk The Garraty...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Bond Yields and Rates of Return A 10-year, 12%...Ch. 4 - Yield to Maturity and Current Yield You just...Ch. 4 - Current Yield with Semiannual Payments
A bond that...Ch. 4 - Prob. 15PCh. 4 - Interest Rate Sensitivity
A bond trader purchased...Ch. 4 - Bond Value as Maturity Approaches An investor has...Ch. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Prob. 20PCh. 4 - Bond Valuation and Changes in Maturity and...Ch. 4 - Yield to Maturity and Yield to Call
Arnot...Ch. 4 - Prob. 23PCh. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - How does one determine the value of any asset...Ch. 4 - Prob. 4MCCh. 4 - What would be the value of the bond described in...Ch. 4 - Suppose a 10-year, 10% semiannual coupon bond with...Ch. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 14MCCh. 4 - Prob. 15MCCh. 4 - Prob. 16MCCh. 4 - Prob. 17MC
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Similar questions
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- Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?arrow_forwardBond 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)?arrow_forwardBond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?arrow_forward
- Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?arrow_forwardBond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of 1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Fill in the following table:arrow_forwardYield to Maturity and Required Returns The Brownstone Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. What is the yield to maturity at a current market price of $807? Round your answer to two decimal places. % What is the yield to maturity at a current market price of $1,113? Round your answer to two decimal places. % Would you pay $807 for one of these bonds if you thought that the appropriate rate of interest was 12% - that is, if rd = 12%.-Select-Yes or No Explain your answer. I. You would buy the bond as long as the yield to maturity at this price does not equal your required rate of return.II. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.III. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.-Select-I II IIIarrow_forward
- The price of a bond with 4 years to maturity that pays interest of $12 Question 4. each half-year is $106. What is the current yield, the capital gains yield and the yield to maturity of this bond? What is the internal rate of return of this bond 100arrow_forwardFYI bonds pay $40 in interest every six months and will mature in 10 years. a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. b. Explain the impact on price if the required rate of return decreases.arrow_forward1. Bond prices and yields (S3.1) A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If interest rates increase shortly after the bond is issued, what happens to the bond's a. Coupon rate? b. Price? c. Yield to maturity?arrow_forward
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