Question

1.Knight, Inc., has issued a three-year bond that pays a coupon of 6.09 percent. Coupon payments are made semiannually. Given the market rate of interest of 5.92 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)
2.Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments at a rate of 13.59 percent. If these bonds have a market price of $952.22, what yield to maturity and effective annual yield can she expect to earn? (Round answer to 2 decimal places, e.g. 15.25%.)

3.Rudy Sandberg wants to invest in four-year bonds that are currently priced at $841. These bonds have a coupon rate of 5.98 percent and make semiannual coupon payments. What is the current market yield on this bond? (Round answer to 2 decimal places, e.g. 15.25%.)
4.The International Publishing Group is raising $10 million by issuing 15-year bonds with a coupon rate of 8.49 percent. Coupon payments will be made annually. Investors buying the bonds today will earn a yield to maturity of 8.49 percent. At what price will the bonds sell in the marketplace? Explain. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.)

5.Nanotech, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 7.52 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 10.25 percent, how much will Nanotech pay to buy back its current outstanding bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.)

Answer 1

1.Knight, Inc.:

We need to solve the following equation to get the price:

Coupon rate and r or the market rate are divided by 2 and the time is multiplied by 2 as the bond has semiannual coupons:

So the market price is 100.46

2.Ruth Hornsby

We need to solve the following equation to get the market interest rate:

Coupon rate and r or the market rate are divided by 2 and the time is multiplied by 2 as the bond has semiannual coupons:

YTM is 16.26%

3.Rudy Sandberg

We need to solve the following equation to get the market interest rate:

Coupon rate and r or the market rate are divided by 2 and the time is multiplied by 2 as the bond has semiannual coupons:

YTM is 8.84%

4.

We need to solve the following equation to get the market price:

As coupon rate and r are the same, the price of the bonds will equal the par value so if each bond has a par value of 1000, it will be issued at par.

When the coupon rate > r, then the price > par value and vice versa.

5.Nanotech, Inc.,

We need to solve the following equation to get the price:

Coupon rate and r or the market rate are divided by 2 and the time is multiplied by 2 as the bond has semiannual coupons:

So the market price is 86.60