Question
In: Economics
You have a chance to buy a BB-rated Grandview, Inc. bond that has a face value...
You have a chance to buy a BB-rated Grandview, Inc. bond that has a face value of $1,000. The bond has a 7% coupon rate of interest and matures in six years. Interest is paid semi-annually. BB-rated bonds of similar maturity pay an interest rate of 8%. How much should you be willing to pay for the Grandview bond?
Solutions
Expert Solution
The value of a bond today is the sum of the present value of the interest payments (valued as an ordinary annuity) and the present value ( semi annualy) of the face value (discounted as a lump-sum):
- Present Value Paid at Maturity = Face Value / (Market Rate/ 100) ^ Number Payments
- Present Value of Interest Payments = Payment Value * (1 - (Market Rate / 100) ^ -Number Payments) / Number Payments)
- Present Value of Bond = Present Value Paid at Maturity + Present Value of Interest Payments
Here, Face Value = $ 1000
Coupon Rate = 7%
Market Interest Rate = 8%
Maturity Period = 6 yrs
Thus putting all the values in the above mentioned formula we get
Answer : Bond Value = $ 953.07
Note : A BB rating reflects an opinion that that the issuer has the current capacity to meet its debt obligations but faces more solvency risk than an A-rated issue and less than a BBB-rated issue if business, financial, or economic conditions change measurably.
Rahul Sunny answered 2 years agoRelated Solutions
You have a chance to buy a BB-rated Grandview, Inc. bond that has a face value...
You have a chance to buy a BB-rated Grandview, Inc. bond that
has a face value of $1,000. The bond has a 7% coupon rate of
interest and matures in six years. Interest is paid semi-annually.
BB-rated bonds of similar maturity pay an interest rate of 8%. How
much should you be willing to pay for the Grandview bond?
Suppose that you want to buy a bond with a face value of $10,000. The bond...
Suppose that you want to buy a bond with a face value of
$10,000. The bond has annual coupon payments at a 20% interest on
its face value each year. If you want a yield to maturity of 16%,
what will be the maximum price of the bond? (Select the closest
answer) (The bond matures in 10 years and the first payment will be
received in one year.)
A. $23589.1
B. $11933.3
C. $10946.7
D. $12369.8
You learned that XYZ, Inc. has a bond with $1,000 face value. The bond carries a...
You learned that XYZ, Inc. has a bond with $1,000 face value.
The bond carries a 9% coupon, paid semiannually, and matures in 15
years. What is the fair market value of the bond if the yield to
maturity is only 7%? (Round your answer to the nearest hundredth;
two decimal places)
Time Value of Money You have the chance to buy the neighbors farm for $500,000. You...
Time Value of Money
You have
the chance to buy the neighbors farm for $500,000. You have a
$100,000 down payment with the rest ($400,000) financed in one of
the following ways.
Equal
annual payments with an interest rate of 7% for 20 years.
Equal
annual payments with an interest rate of 10% for 15 years.
Equal
quarterly payments with an interest rate of 8% for 15 years.
Your
neighbor will carry the contract.
1)
Calculate each of the loans...
Assume you buy a bond with a face value of $1,000, maturity of 5 years, and...
Assume you buy a bond with a face value of $1,000, maturity of 5
years, and a coupon rate of 7%. Assume that the YTM remains
constant and equal to 7% throughout the life of the bond. What will
be your accumulated interest income by the time the bond
matures?
"Suppose you buy a 30 year zero coupon bond with a face value of $1000 and...
"Suppose you buy a 30 year zero coupon bond with a face value of
$1000 and a 4% annual interest rate, compounded semi-annually. 1
minute after you buy the bond, the interest rate on this bond falls
to 3%, compounded semi-annually. What is the percent change in the
bond price?
You buy a 30-year zero coupon bond with a face value of $1000 and a 4%...
You buy a 30-year zero coupon bond with a face value of $1000
and a 4% interest rate, compounded semi-annually. The moment after
you buy the bond, the interest rate falls to 3%, compounded
semi-annually. What is the percent change in the bond price? Note:
the sign is important!
You buy a bond with the following features: 9 years to maturity, face value of $1000,...
You buy a bond with the following features: 9 years to maturity,
face value of $1000, coupon rate of 2% (annual coupons) and yield
to maturity of 2.5%. Just after you purchase the bond, the yield to
maturity rises to 4.9%. What is the capital gain or loss on your
bond?
If the answer is a capital gain just enter the number. For
example 581.65
If the answer is a capital loss enter a negative number. For
example -841.47
Do...
Suppose that you buy a two-year 7.3% bond at its face value a-1. What will be...
Suppose that you buy a two-year 7.3% bond at
its face value
a-1. What will be your total nominal return
over the two years if inflation is 2.3% in the first year and 4.3%
in the second? (Do not round intermediate calculations.
Enter your answer as a percent rounded to 2 decimal
places.)
Nominal return = ?
a-2. What will be your real return? (Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places....
Problem 1 : Suppose you buy a 3-year US Treasury bond with a face value of...
Problem 1 : Suppose you buy a 3-year US Treasury bond with a
face value of $1,000. It pays three annual coupons at a rate of
2.50% exactly 1, 2, and 3 years from the day you purchase it. (a)
Assume that when you purchase the bond, its yield to maturity
equals 3%. What is its value on the day of purchase? (b) Is this
bond issued at par, a discount, or premium? (c) Next assume the
moment after you...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Describe the principles and operations of movement sensors: Doppler-Effect Velocity sensor and Spring-Mass Accelerometor; State the...
- This is all one question, thank you so much in advance. The Bigbee Bottling Company is...
- For Questions 1-3: consider the following code: public class A { private int number; protected String...
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
ADVERTISEMENT