EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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Chapter 7, Problem 18SP
(Bondholders’ expected
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Consider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? What is the yield to maturity of the bond?
Consider a bond with a principal of $1,000 that pays a coupon of $100 per year. If the bond matures in one year and the current interest
rate is i = 3%, what is the price (present value) of the bond? Round to the nearest cent.
Answer:
A bond has a face value of $1,000. If this bond will mature in 5 years, pays interest semiannually, and has a coupon rate of 6%, what is the yield to maturity on this bond if it is currently selling for $720? (Show your work to receive full credit)
Chapter 7 Solutions
EBK 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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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 would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond? What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)arrow_forwardSuppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?arrow_forwardA bond has 6 years remaining to maturity, pays annual coupons (yesterday) of $7.4, and has a face value of $100. The current price of the bond is $73.701 and the price next year is expected to be $76.767. (Interest rates are not expected to change over the coming year.) What is the return on the bond if you hold it for one year?by Formula pls.arrow_forward
- Example: You buy a 10-year maturity bond for the face value of $1,000 when the current interest rate is 9%. A year later, you sell the bond for $980. Assuming annual coupon payment, a. What is the new yield to maturity on the bond when you sell the bond? b. What's your holding period return during the year?arrow_forwardPlease show how to work this out.arrow_forwardConsider a 25-year bond with a face value of $1,000 that has a coupon rate of 5.8%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline. a. What is the coupon payment for this bond? The coupon payment for this bond is $ *** (Round to the nearest cent.)arrow_forward
- Consider a two-year bond with a face value $1000 and a coupon rate 4.2%paid annually.(a) On the market, the 2-year interest rate is 3%. What is the fair marketprice for this bond?(b) When the interest rate increases to 5%, what would the bond pricebecome?(c) What if the interest rate falls to 1%?arrow_forwardGive typing answer with explanation and conclusionarrow_forwardSuppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% 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?arrow_forward
- Consider a bond paying a coupon rate of 10% per year semi-annually when the market interest rate is only 4% per half-year. The bond has three years until maturity. This initial payment is $1000. A: What is find the bond’s price today and 6 months time after the next coupon is paid? B: What is the total rate of return on the bond?arrow_forwardConsider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? 10% 0% -10% 20%arrow_forwardSuppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?arrow_forward
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