Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 7, Problem 15SP
Summary Introduction
To determine: The
Summary Introduction
To determine: The value of bond semi-annually.
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You purchased a bond at a price of $800. In 15 years when the bond matures, the bond will be worth $5,000. It is exactly 8 years after you purchased the bond and you can sell the bond today for $3,300. If you hold the bond until it matures, what annual rate of return will you earn from today?
(Bond valuation) You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 11 percent
a. Calculate the value of the bond.
b. How does the value change if your required rate of return (1) increases to 15 percent or (2) decreases to 7 percent?
c. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds.
d. Assume that the bond matures in 4 years instead of 20 years. Recompute your answers in part b.
e. Explain the implications of your answers in part d as they relate to interest rate risk, premlum bonds, and discount bonds.
A mortgage bond issued by Automation Engineering is for sale for $8,800. The bond has a face value of $10,000 with a coupon rate of
7% per year, payable monthly. What rate of return will be realized if the purchaser holds the bond to maturity 10 years from now?
The rate of return will be
% per year.
Chapter 7 Solutions
Foundations Of Finance
Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - a. How does a bonds par value differ from its...Ch. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Define the expected rate of return to bondholders.
Ch. 7 - (Bond valuation) Bellingham bonds have an annual...Ch. 7 - (Bond valuation) Flora Co.s bonds, maturing in 7...Ch. 7 - (Bond valuation) You own a 20-year, 1,000 par...Ch. 7 - (Bond valuation) Calculate the value of a bond...Ch. 7 - (Bond valuation) At the beginning of the year, you...Ch. 7 - Prob. 6SPCh. 7 - (Bond relationship) Mason, Inc. has two bond...Ch. 7 - Prob. 8SPCh. 7 - (Bond valuation) National Steels 15-year, 1,000...Ch. 7 - (Bond valuation) You own a bond that pays 70 in...Ch. 7 - Prob. 11SPCh. 7 - (Bond valuationzero coupon) The Latham Corporation...Ch. 7 - (Bond valuation) Bank of America has bonds that...Ch. 7 - Prob. 15SPCh. 7 - Prob. 16SPCh. 7 - Prob. 17SPCh. 7 - (Bondholders expected rate of return) You own a...Ch. 7 - (Expected rate of return and current yield) Time...Ch. 7 - (Expected rate of return and current yield)...Ch. 7 - Prob. 21SPCh. 7 - Prob. 22SPCh. 7 - (Current yield) Assume you have a bond with a...Ch. 7 - Prob. 24SPCh. 7 - (Expected rate of return) Assume you own a bond...Ch. 7 - Prob. 26SPCh. 7 - (Bondholders expected rate of return) You...Ch. 7 - Prob. 1MCCh. 7 - Assume that the bonds are selling for the...Ch. 7 - Prob. 3MCCh. 7 - Prob. 4MCCh. 7 - Prob. 5MC
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- A mortgage bond issued by Automation Engineering is for sale for $7,700. The bond has a face value of $10,000 with a coupon rate of 6% per year, payable semi-annually. What rate of return will be realized if the purchaser holds the bond to maturity 6 years from now? The rate of return will be % per year.arrow_forwardIf you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?arrow_forwardA mortgage bond issued by Automation Engineering is for sale for$8,900. The bond has a face value of$10,000 with a coupon rate of 10%per year, payable monthly. What rate of return will be realized if the purchaser holds the bond to maturity 10 years from now? The rate of return will be......%per year.arrow_forward
- (Bond valuation) You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 10 percent. a. Calculate the value of the bond. b. How does the value change if your required rate of return (1) increases to 15 percent or (2) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 3 years instead of 20 years. Recompute your answers in part b. e. Explain the implications of your answers in part d as they relate to interest rate risk, premium bonds, and discount bonds. a. If your required rate of return is 10 percent, what is the value of the bond? $ (Round to the nearest cent.)arrow_forwardA.) 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 realized rate of return earned on this bond. B.) 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?arrow_forwardPlease show full steps and correctly thanksarrow_forward
- Solve it correctly. I will rate.arrow_forwardYou bought a $1,000 face value Suffolk County, NY 10-year bond with equal annual amortization. A) How much principal will you receive each year? B) If the coupon rate is 4.3%/year, how much interest will you receive in year 1 and year 2?arrow_forwardYou are considering purchasing a bond. The bond will pay you $100 at the end of each year for 20 years. At the end of the 20th year, the bond will also pay you back its $1,000 face value. Assuming a 4% discount rate, how much is this bond worth today? Round to the nearest dollar.arrow_forward
- (Bond valuation) You own a 10-year, $1,000 par value bond paying 8 percent interest annually. The market price of the bond is $825, and your required rate of return is 12 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should you sell the bond or continue to own it? ... a. What is the expected rate of return of the 10-year, $1,000 par value bond paying 8 percent interest annually if its market price is $825? % (Round to two decimal places.)arrow_forwardSuppose you purchase a 10-year bond with 5% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 3.49% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.)arrow_forward1) A corporate bond has a face value of $1000 with maturity date 10 years from today. The bond pays interest annually at a 7% per year based on the face value. If you want an annual rate of return of 10%/yr, how much are you willing to pay for the bond today?arrow_forward
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