Question

In: Finance

QUESTION 5: A $1,000 par value bond was issued 25 years ago at a 12 percent...

QUESTION 5:

A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,050. Further assume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan.

a. What is the current price of the bond? Use Table 16-2. (Input your answer to 2 decimal places.)

b. What is her dollar profit based on the bond’s current price? (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. How much of the purchase price of $1,050 did Ms. Bright pay in cash? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

d. What is Ms. Bright’s percentage return on her cash investment? Divide the answer to part b by the answer to part c. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

QUESTION 3:

The yield to maturity for 10-year bonds is as follows for four different bond rating categories. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Aaa 8.40%
Aa1 8.60%
Aa2 11.00%
Aa3 12.00%

The bonds of Falter Corporation were rated as Aaa and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determine the new price of the bonds, assuming a 10-year maturity and semiannual interest payments. (Do not round intermediate calculations and round your answer to 2 decimal places.)

PRICE OF BONDS: $________

I WILL RATE! THANKS

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

TABLE VALUE MISSING. FOUND USING PVIFA AND PVIF TABLE. IF VALUE IS DIFFERENT THAN IN TABLE, PLEASE PROVIDE TABLE


Related Solutions

A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate....
A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,040. Further assume Ms. Bright paid 20 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to...
A $1,000 par value bond was issued 30 years ago at a 12 percent coupon rate....
A $1,000 par value bond was issued 30 years ago at a 12 percent coupon rate. It currently has 25 years remaining to maturity. Interest rates on similar obligations are now 8 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,090. Further assume Ms. Bright paid 40 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to...
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
A $1,000 par value bond was issued five years ago at a coupon rate of 8 percent. It currently has 15 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer...
23 A $1,000 par value bond was issued five years ago at a coupon rate of...
23 A $1,000 par value bond was issued five years ago at a coupon rate of 12 percent. It currently has 25 years remaining to maturity. Interest rates on similar debt obligations are now 14 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your...
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
A $1,000 par value bond was issued five years ago at a coupon rate of 8 percent. It currently has 10 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer...
A $1,000 par value bond was issued five years ago at a coupon rate of 6...
A $1,000 par value bond was issued five years ago at a coupon rate of 6 percent. It currently has 8 years remaining to maturity. Interest rates on similar debt obligations are now 8 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer...
The Sampson Company issued a $1,000 bond 5 years ago with an initial term of 25...
The Sampson Company issued a $1,000 bond 5 years ago with an initial term of 25 years and a coupon rate of 9.5%. Today's interest rate is 10%. Do not round intermediate calculations. Round PVFA and PVF values in intermediate calculations to four decimal places. What is the bond's current price if interest is paid semiannually as it is on most bonds? Round the answer to the nearest cent. $    What is the price if the bond's interest is...
A bond has a $1000 par value and issued 5 years ago. The bond has 10...
A bond has a $1000 par value and issued 5 years ago. The bond has 10 years to maturity and an annual 8% annual coupon and sells for $990. i) Estimate the bond's current yield ii) Estimate the bond's yield-to-maturity iii) Explain the relationship of the bond price and its yield (Please explain the answer in detail, thank you)
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?
Andrus Inc. issued convertible bonds at their $1,000 par value 5 years ago The bonds currently...
Andrus Inc. issued convertible bonds at their $1,000 par value 5 years ago The bonds currently sell for $950. At any time prior to maturity on August 1, 2031, a debenture holder can exchange a bond for 25 shares of common stock. The current stock price is $30. What is the conversion price,? $33 $32 $38 $40 None of the above
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT