Question 1) Complex Systems has an outstanding issue of $1000 par value bonds with a 11%...

Question 1) Complex Systems has an outstanding issue of $1000 par value bonds with a 11% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.

a) If the bonds of similar risk are currently earning a rate of return of 9%, how much should Complex Systems bond sell for today?

b) Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex System bond.

c) If the required return were at 11% instead of 9%, what would be the current value of Complex Systems' bond? Contrast this find with your findings in part a and discuss.

Question 2) The Salem Company bond currently sells for $1,262.40, has a coupon interest rate of 18% and a $1000 par value, pays interest annually and has 20 years to maturity.

a) Calculate the yield to maturity (YTM) on this bond.

b) Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of the bond.

Question 3) Find the value of a bond maturing in 6 years, with a $1000 par value and a coupon interest rate of 13% (6.5% paid semiannually) if the required return on similar-risk bonds is 13% annual interest (6.5% paid semiannually).

Solutions

Expert Solution

SEE IMAGES

WE TAKE GREAT CARE IN PROVIDING SOLUTIONS TO YOU. BUT OCCASSIONALLY MISTAKES CAN HAPPEN.

SO IF THAT HAPPENS, LET US KNOW, WILL CORRECT IT.

ANY DOUBTS, FEEL FREE TO ASK. HAPPY TO HELP YOU

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 11% coupon...

Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 11% coupon interest rate. The issue pays interest annually and has 11 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 8%, how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond....

draw a timeline: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 12% coupon...

draw a timeline: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date. a. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. c....

Simplified Systems has an outstanding issue of $1000-par-value bonds with a 12% coupon interest rate. The...

Simplified Systems has an outstanding issue of $1000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date. If bonds of similar risk are currently earning a 10% rate of return, how much should the Simplified Systems bond sell for today? Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Simplified Systems bond. If the required return were...

Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon...

Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon interest rate. The issue pays interest annually and has 13 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 11%,how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. c. ...

the company has an outstanding issue of bonds with a par value of $1,000 and paying...

the company has an outstanding issue of bonds with a par value of $1,000 and paying a 3.80 percent p.a. coupon rate with semi‑annual payments. The bonds were issued 30 years ago and have 15 years to maturity. What should be the current price per bond, assuming a 4.28 percent p.a. yield on comparable securities? please show all calculations on excel

(a) Trump Limited has an outstanding issue of convertible bonds with $1,000 par value. These bonds...

(a) Trump Limited has an outstanding issue of convertible bonds with $1,000 par value. These bonds are convertible into 50 shares of Ali’s common stock. The convertible bonds have a 10% coupon with 10-year maturity. The yield-to-maturity for a straight bond of similar risk is 8%. i. Calculate the straight bond value of the convertible bond. ii. What is the conversion value of the convertible bond when the market price of Trump’s common stock is $30 per share? iii. If...

The firm currently has one issue of bonds outstanding. The bonds have a par value of...

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1 comma 000 per bond, carry a coupon rate of 8 percent, have 14 years to maturity, and are selling for $1, 070. Nealon's common stock has a current market price of $ 36, and the firm paid a $2.60 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future. What is the cost of...

The firm currently has one issue of bonds outstanding. The bonds have a par value of...

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per bond, carry a coupon rate of 8 percent, have 14 years to maturity, and are selling for $1,070.Nealon's common stock has a current market price of $ 36 and the firm paid a $2.60 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future. A) What is the weighted average cost of capital...

(Bonds) A company has an outstanding issue of $1000 face value bonds with 8.75% annual coupon...

(Bonds) A company has an outstanding issue of $1000 face value bonds with 8.75% annual coupon and 10 years remaining until maturity. The bonds are currently selling at a price of 82.50 (82.50% of face value). The company wishes to sell a new a bond issue with a 30-year maturity. Their investment bank has advised that (1) the new 30-year issue could be sold for a flotation cost of 3% of face value, and (2) current yield curves indicate that...

Jacks Construction has 80 bonds outstanding that are selling at their par value of $1000 each....

Jacks Construction has 80 bonds outstanding that are selling at their par value of $1000 each. Bonds with similar characteristics are yielding a pre-tax 8.6% ( pre-tax cost of debt). The firm has 4000 shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The US T-bill is yielding 4%, the market risk premium is 8% and the firms tax rate is 21%. The firm is considering a 5 year expansion project...

Subjects