Fundamentals Of Financial Management
14th Edition
ISBN: 9781305629080
Author: Eugene F. Brigham, Joel F. Houston
Publisher: South-western College Pub (edition 14)
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 9P
(a)
Summary Introduction
To calculate: Yield to maturity (YTM).
Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.
(b)
Summary Introduction
To identify: Whether $829 should be paid when interest rate was 12%.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.
a. What is the yield to maturity at a current market price of
1. $819? Round your answer to two decimal places.
%
2. $1,170? Round your answer to two decimal places.
%
b. Would you pay $819 for each bond if you thought that a "fair" market interest rate for such bonds was 14%-that is, if rd = 14%?
I. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.
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 is less than your required rate of return.
IV. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
V. You would not buy the bond as long as the yield to maturity at this price is…
Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8%.
a. What is the yield to maturity at a current market price of
1. $802? Round your answer to two decimal places.
%
2. $1,049? Round your answer to two decimal places.
%
b. Would you pay $802 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13% ?
I. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.
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 is less than your required rate of return.
IV. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
V. You would not buy the bond as long as the yield to maturity at this price is…
Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000
par value and a coupon rate of 10%.
a. What is the yield to maturity at a current market price of
1. $835? Round your answer to two decimal places.
%
2. $1,130? Round your answer to two decimal places.
%
b. Would you pay $835 for each bond if you thought that a "fair" market interest rate for such bonds was 14%-
that is, if ra = 14%?
I. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.
II. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
III. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of
return.
IV. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the
bond.
V. You would buy the bond as long as the yield to maturity at this price is…
Chapter 7 Solutions
Fundamentals Of Financial Management
Ch. 7 - A sinking fund can be set up in one of two ways:...Ch. 7 - Can the following equation be used to find the...Ch. 7 - The values of outstanding bonds change whenever...Ch. 7 - If interest rates rise after a bond issue, what...Ch. 7 - Discuss the following statement: A bonds yield to...Ch. 7 - If you buy a callable bond and interest rates...Ch. 7 - Prob. 7QCh. 7 - Indicate whether each of the following actions...Ch. 7 - Why is a call provision advantageous to a bond...Ch. 7 - Are securities that provide for a sinking fund...
Ch. 7 - Whats the difference between a call for sinking...Ch. 7 - Why are convertibles and bonds with warrants...Ch. 7 - Explain whether the following statement is true or...Ch. 7 - Prob. 14QCh. 7 - A bonds expected return is sometimes estimated by...Ch. 7 - Which of the following bonds has the most price...Ch. 7 - Which of the bonds has the most reinvestment risk?...Ch. 7 - Prob. 1PCh. 7 - YIELD TO MATURITY AND FUTURE PRICE A bond has a...Ch. 7 - BOND VALUATION Nungesser Corporation's outstanding...Ch. 7 - YIELD TO MATURITY A firms bonds have a maturity of...Ch. 7 - BOND VALUATION An investor has two bonds in his...Ch. 7 - BOND VALUATION An investor has two bonds in her...Ch. 7 - INTEREST RATE SENSITIVITY .An investor purchased...Ch. 7 - YIELD TO CALL Six years ago the Singleton Company...Ch. 7 - Prob. 9PCh. 7 - Prob. 10PCh. 7 - BOND YIELDS Last year Clark Company issued a...Ch. 7 - YIELD TO CALL It is now January 1, 2015, and you...Ch. 7 - PRICE AND YIELD An 8% semiannual coupon bond...Ch. 7 - Prob. 14PCh. 7 - BOND VALUATION Bond X is noncallable and has 20...Ch. 7 - Prob. 16PCh. 7 - BOND RETURNS Last year Joan purchased a 51,000...Ch. 7 - YIELD TO MATURITY AND YIELD TO CALL Kaufman...Ch. 7 - BOND VALUATION Clifford Clark is a recent retiree...Ch. 7 - BOND VALUATION Robert Black and Carol Alvarez are...
Knowledge Booster
Similar questions
- Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?arrow_forwardYield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?arrow_forwardCurrent Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?arrow_forward
- 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 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_forwardKrystian 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_forward
- Bond 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_forwardWaylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?arrow_forwardHarrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $841? Round your answer to two decimal places. 2. $1,197? Round your answer to two decimal places. b. Would you pay $841 for each bond if you thought that a "fair" market interest rate for such bonds was 14%-that is, if rd = 14%?arrow_forward
- Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $879? Round your answer to two decimal places. 13.03 % 2. $1,246? Round your answer to two decimal places. % b. Would you pay $879 for each bond if you thought that a "fair" market interest rate for such bonds was 12%-that is, if rd = 12%? I. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return. II. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. III. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return. IV. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond. V. You would buy the bond as long as the yield to maturity at this price is…arrow_forwardarrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. What is the yield to maturity at a current market price of 1. $8617 Round your answer to two decimal places. % 2. $1,1417 Round your answer to two decimal places. % . Would you pay $861 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13% ? 1. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. II. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return. III. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond. IV. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. V. You would buy the bond as long as the yield to maturity at this price is less…arrow_forwardеВook Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. a. What is the yield to maturity at a current market price of 1. $822? Round your answer to two decimal places. % 2. $1,107? Round your answer to two decimal places. % b. Would you pay $822 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if ra = 13%? I. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond. 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 is less than your required rate of return. IV. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. You would not buy the bond as long as the yield to maturity at this price is…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781305635937Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT