Question
In: Finance
Miller Corporation has two bonds outstanding. Both bonds have coupon rates of 10% and one has...
Miller Corporation has two bonds outstanding. Both bonds have
coupon rates of 10% and one has a maturity of 10 years, while the
other has a maturity of 20 years. Interest is paid semi-annually.
Calculate the following for both bonds.
A) If market rates for bonds of equal risk fell to 8% what would be
the maximum price an investor would be willing to pay for these
bonds?
B) If market rates for bonds of equal risk remained at 10%, what
would be the bonds' current worth?
C) If market rates for bonds of equal risk rose to 12%, what would
be the bonds' theoretical value?
Bond A: 10 years semiannually = 20 periods
Bond B: 20 years semiannually = 40 periods
please need detail answers with workings
Solutions
Expert Solution
| Bond | A | B | |
| Coupon | 10% | 10% | |
| Maturity | 10 years | 20 years | |
| a | Rate | 8% | 8% |
| Price | $1,135.90 | $1,197.93 | |
| b | Rate | 10% | 10% |
| Price | $1,000.00 | $1,000.00 | |
| c | Rate | 12% | 12% |
| Price | $885.30 | $849.54 |
Workings
jeff jeffy answered 7 months agoRelated Solutions
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years...
Consider two bonds, both with 8% coupon rates (assume
annual coupon payments) one with 10 years to
maturity and the other with 20 years to maturity. Assume that
current market rates of interest are 8%. Calculate the
difference in the change of the price of the two
bonds if interest rates decrease to 6% one year after
purchasing the bond. Repeat the procedure assuming
that interest rates increase to 10% one year after purchase.
Explain the major bond pricing principle...
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years...
Consider two bonds, both with 8% coupon rates (assume annual
coupon payments) one with 10 years to maturity and the other with
20 years to maturity. Assume that current market rates of interest
are 8%. Calculate the difference in the change of the price of the
two bonds if interest rates decrease to 6% one year after
purchasing the bond. Repeat the procedure assuming that interest
rates increase to 10% one year after purchase. Explain the major
bond pricing principle...
A corporation has 10,000 bonds outstanding with a 7% annual coupon rate, 10 years to maturity,...
A corporation has 10,000 bonds
outstanding with a 7% annual coupon rate, 10 years to maturity, a
$1,000 face value, and a $950 market price. The company’s 400,000
shares of common stock sell for $85 per share, have a beta of 1.2,
the risk-free rate is 2%, and the expected market return is 18%.
Assuming a tax rate of 35%, what is this corporation’s weighted
average cost of capital?
Please use excel and show the formulas used if can. Thanks...
A company has two different bonds currently outstanding. Both bonds have a face value of R100....
A company has two different bonds currently outstanding. Both
bonds have a face value of R100. Bond A matures in 10 years. The
bond makes no coupon payments for the first four years and then
pays R8.50 semi-annually for the subsequent four years, and finally
pays R10.50 semi-annually for the last two years. Bond B also
matures in 10 years; it makes coupon payments of R4.50
semi-annually over its life. The yield to maturity on both bonds is
12% per...
The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon...
The Mariposa Co. has two bonds outstanding. One was issued 25
years ago at a coupon rate of 9%. The other was issued 5 years ago
at a coupon rate of 9%. Both bonds were originally issued with
terms of 30 years and face values of $1,000. The going interest
rate is 12.5% today. What are the prices of the two bonds at this
time? Assume bond coupons are paid semiannually. Round the answers
to the nearest cent.
Old: $...
D Corporation has three bonds outstanding. All three have a coupon rate of 9 percent and...
D Corporation has three bonds outstanding. All three have a
coupon rate of 9 percent and a $1000 par value. The first bond has
one year left to maturity. The second bond has 4 years left to
maturity. The last bond has 8 years left to maturity. Assume for
simplicity that the market rate for all three bonds is now 5
percent.
What is the value for the first bond
with one year left to maturity? ___________
What is the...
. Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have...
. Lynn Parsons is considering investing in either of two
outstanding bonds. The bonds both have $1000 par values and 11 %
coupon interest rates and pay annual interest. Bond A has exactly 9
years to maturity, and bond B has 19 years to maturity. a.
Calculate the present value of bond A if the required rate of
return is: (1) 8 %, (2) 11 %, and (3) 14 %. b. Calculate the
present value of bond B if the...
The University of California has two bonds outstanding. Both issues have the same credit rating, a...
The University of California has two bonds outstanding. Both
issues have the same credit rating, a face value of $1,000 and a
coupon rate of 4%. Coupons are paid twice a year. Bond A matures in
1 year, while bond B matures in 30 years. The market interest rate
for similar bonds is 12% (quoted as a semi-annual simple interest
rate, so 6% per 6-month period). What is the price of Bond A? What
is the price of Bond B?...
The University of California has two bonds outstanding. Both issues have the same credit rating, a...
The University of California has two bonds outstanding. Both
issues have the same credit rating, a face value of $1,000 and a
coupon rate of 4%. Coupons are paid twice a year. Bond A matures in
1 year, while bond B matures in 30 years.
The market interest rate for similar bonds is 8%.
What is the price of bond B?
Now assume that yields increase to 11%. What is the price of
bond A?
What is now the price...
The University of California has two bonds outstanding. Both issues have the same credit rating, a...
The University of California has two bonds outstanding. Both
issues have the same credit rating, a face value of $1,000 and a
coupon rate of 3%. Coupons are paid twice a year. Bond A matures in
1 year, while bond B matures in 30 years. The market interest rate
for similar bonds is 10%.
Part 1
What is the price of bond A?
Attempt 1/5 for 10 pts.
Part 2
What is the price of bond B?
Attempt 1/5 for...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Baked potatoes are normally wrapped in aluminum foil. How does this affect the cooling of the...
- What is the process to obtain biomass production
- A labor market has 50,000 people in the labor force. Each month, a fraction p of...
- A road with a radius of 72 m is banked so that a car can navigate...
- 1) If you had not dried the solid, would the calculated percent yield have been higher,...
- Two structures of alanine can be drawn that have a net charge of zero, but the...
- Co(II) was used as an internal standard to analyze a sample of Ti(IV) with atomic absorption...
ADVERTISEMENT