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 3SP
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- 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?
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(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.)
a. Assuming you purchased the bond for $350 what rate of return would you earn if you held the bond for 25 years until it matured with a value $1000?
a. Rate of return____%
b. Suppose under the terms of thebond you could redeem the bond in 2024. DMF agreed to pay an annual interest rate of 1.4 percent until the date. How much would the bond be worth at that time?
b. Bond value_____
c. In 2024 instead of cashing in the bond for its then current value you decide to hold the bond until it mature in 2043. What annual rate of return will you earn over the last 19 years?
c. Rate of return___%
You are considering the purchase of a perpetual bond that pays you $174 per year for the foreseeable future. If you require a 5.85% rate of return on this bond investment, what is a fair price for the bond that you would be willing to pay today? To nearest $0.01
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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- (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_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_forwardSuppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $750, calculate the interest rate that the bond would yield to a bond buyer. Show all work.arrow_forward
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What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License