10-4 Suppose that five years ago Cisco Systems sold a 15 years bond issue that had...

10-4 Suppose that five years ago Cisco Systems sold a 15 years bond issue that had a $1000 par value and a 7 percent coupon rate. Interest is paid semiannually.

a- If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?

b- Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco's bonds over time?

Solutions

Expert Solution

jeff jeffy answered 1 week ago

Next > < Previous

Related Solutions

Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate.

Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually.a. If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?b. Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco’s bonds over time?

Suppose that five years ago MRT Limited sold a 20 -year bond issue that had a...

Suppose that five years ago MRT Limited sold a 20 -year bond issue that had a $1000 par value and a 7 percent coupon rate. Interest is paid semiannually. If the going interest rate has risen to 10 percent, at what price would the bonds sell today? (1.5 Marks) Suppose that the interest rate remained at 10 percent for the next 15 years. What would happen to the price of the MRT Limited bonds over time?

Five years ago, the City of Baltimore sold at par a $1,000 bond with a coupon...

Five years ago, the City of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity. If this bond pays interest annually, what is the value of this bond to an investor who requires an 8 percent rate of return? A. $607.72 B. $692.00 C. $1,000 D. cannot be determined from the information given What is the value of an Orion bond that has a 10 percent coupon, pays interest annually,...

A utility company sold an issue of 6 percent bonds 5 years ago. Each bond has...

A utility company sold an issue of 6 percent bonds 5 years ago. Each bond has a face value (value at maturity) of $1000, which is due in 13 years from now. The bond pays interest twice a year (3 percent per period). Because of market conditions, the bond can now be sold on the bond market for only $760. If a buyer wants his or her investment to earn 10 percent nominal rate per year, compounded semiannually, and must...

A 10-year GM bond has a 10% coupon rate and was issued 4 years ago. If...

A 10-year GM bond has a 10% coupon rate and was issued 4 years ago. If investors require a return of 12%, calculate the bond’s value. Show the (condensed) time line and key steps of two methods. For the NS method, show the abbreviated equation/expression.

A 10 percent coupon bond was issued 2 years ago and sold at par value. Now,...

A 10 percent coupon bond was issued 2 years ago and sold at par value. Now, the required return on the same bond is 8 percent. What is the coupon rate today?

Amy purchased a 15-year bond at par value when it was initially issued five years ago....

Amy purchased a 15-year bond at par value when it was initially issued five years ago. The bond has an annual coupon rate of 6% and a par value of $1000. The current market interest rate (yield to maturity) is 4.25%. At the current market interest rate, this bond will sell at _______. Assuming no change in market interest rates, the bond will present the Amy with capital ________ as it matures. . A. premium; gains B. discount; gains C....

Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a...

Wilson Oil Company issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 9 percent. This return was in line with the required returns by bondholders at that point in time as described below: Real rate of return 3 % Inflation premium 3 Risk premium 3 Total return 9 % Assume that 10 years later, due to bad publicity, the risk premium is now 7 percent...

Carolina issued a 15-year semi-annual non-callable bond five years ago. Bond has a $1,000 face value,...

Carolina issued a 15-year semi-annual non-callable bond five years ago. Bond has a $1,000 face value, coupon rate of 5% and it currently sells for $925. Carolina needs to issue 10-year semi-annual note. Note will be non-callable and is expected to get the same credit rating as outstanding bond issue. If Carolina wants to issue and sell new note at par, find approximate coupon rate that needs to be assigned to the note. (Hint: similar bonds/notes should be providing approximately...

Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had...

Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 12 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return 4 % Inflation premium 5 Risk premium 3 Total return 12 % Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in...

Subjects