Question

In: Finance

1. You are considering the bonds of Epsilon, Inc., a printer manufacturer. The bonds make semiannual...

1. You are considering the bonds of Epsilon, Inc., a printer manufacturer. The bonds make semiannual payments and have five years to maturity, a coupon rate of 7%, and a redemption value of $1,000.

A. Determine the intrinsic value of these bonds assuming that your required rate of return is 10% (use the PV function.) B. Also determine the current yield and the yield to call (use the RATE function) if the bonds can be called in four years with a call premium of 2%.

(This needs to be done in Excel)

Solutions

Expert Solution

A)

Hence, Bond intrinsic value is $884.17

B)

Current yield:

= $70/$884.17

= 7.92%

Hence, Yield to call is 11.08% (5.54%*2)

Please rate Thumbs up

jeff jeffy answered 8 months ago
Next > < Previous

Related Solutions

You are considering a corporate bond with 10% coupon bonds with semiannual payments and a yield...
You are considering a corporate bond with 10% coupon bonds with semiannual payments and a yield to maturity of 11% . The bonds mature in 9 years. What is the market price per bond if the face value is $1,000? (Round answers to two decimals, enter answer without $ or "," , such as 1234.78)
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 7.70%. Using...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with two years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of the bond is 11.00%. Using...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. 1) Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 7.70%....
1) Semiannual compounding and/or that all coupon bonds are semiannual-pay bonds; 2) Bonds are $1000 par....
1) Semiannual compounding and/or that all coupon bonds are semiannual-pay bonds; 2) Bonds are $1000 par. What is the Macaulay duration of a semiannual-pay 8.16 percent coupon bond with 7 years to maturity and a yield to maturity of 7.52 percent? Answer to two decimals, carry intermediate calcs. to four decimals. ****Please show the steps of calculation and the inputs of financial calculator
On January 1, 2015, Brightstar Inc. issued $1,000,000 of 8%, semiannual 3-year coupon bonds. 1) The...
On January 1, 2015, Brightstar Inc. issued $1,000,000 of 8%, semiannual 3-year coupon bonds. 1) The market interest rate on January 1, 2015 was 10%. Was the bond issued at par, a premium, or a discount?
1.       Choo Choo Inc. is a manufacturer of model trains. The company is considering the...
1.       Choo Choo Inc. is a manufacturer of model trains. The company is considering the purchase of an industrial 3D printer, which will allow the firm to produce custom-made model trains for its high-end customers. The printer will cost $2,500,000, and it is expected to produce net cash flows of $600,000 per year for the next six years. Liquidation of the equipment will net the firm $350,000 in cash at the end of six years. The firm requires a...
1.       Choo Choo Inc. is a manufacturer of model trains. The company is considering the...
1.       Choo Choo Inc. is a manufacturer of model trains. The company is considering the purchase of an industrial 3D printer, which will allow the firm to produce custom-made model trains for its high-end customers. The printer will cost $1,000,000, and it is expected to produce net cash flows of $350,000 per year for the next six years. Liquidation of the equipment will net the firm $100,000 in cash at the end of six years. The firm requires a...
The Ivanhoe Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a...
The Ivanhoe Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.075 percent. The current market rate for similar securities is 11.3 percent. Assume that the face value of the bond is $1,000. Suppose the bond were to mature in 12 years. What will be the bond’s price if rates in the market (i) decrease to 9.30 percent or (ii) increase to 12.3 percent? (i) Bond's price if rate decrease to 9.30 percent...
The Sheridan Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a...
The Sheridan Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.325 percent. The current market rate for similar securities is 11.8 percent. Assume that the face value of the bond is $1,000. Suppose the bond were to mature in 12 years. What will be the bond’s price if rates in the market (i) decrease to 9.80 percent or (ii) increase to 12.8 percent?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT