Question

In: Finance

1. ABC Company bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...

1. ABC Company bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value and the coupon interest rate is 9%.

i) What is the yield to maturity at a current market price of $829?
ii) What is the yield to maturity at a current market price of $1,104?
iii) If you thought that the appropriate rate of interest was 12% (i.e. Kd=12%), would you buy these bonds? (Both, if one, identify which one, or none) Explain your answer

Solutions

Expert Solution

a.1.Information provided:

Par value= future value= $1,000

Time= 5 years

Coupon rate= 9%

Coupon payment= 0.10*1,000= $90

Current price= present value= $829

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

N= 5

PMT= 90

PV= -829

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 13.98.

Therefore, the yield to maturity is 13.98%.

a.2.Information provided:

Par value= future value= $1,000

Time= 5 years

Coupon rate= 9%

Coupon payment= 0.10*1,000= $90

Current price= present value= $1,104

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

N= 5

PMT= 90

PV= -1,104

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 6.50.

Therefore, the yield to maturity is 6.50%.

b.I would buy the bond with the current market price of $829 as the yield to maturity is greater than the required rate of return.

In case of any query, kindly comment on the solution.


Related Solutions

1. Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...
1. Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11%. The bonds have a yield to maturity of 12%. What is the current market price of these bonds? Round your answer to the nearest cent. 2. Wilson Wonders' bonds have 15 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is...
9. ABC Corporation bonds have ten years remaining to maturity. Interest is paid annually, the bonds...
9. ABC Corporation bonds have ten years remaining to maturity. Interest is paid annually, the bonds have $1,000 par value, and the coupon interest rate is 8%. Would you buy the bond if its current market price is $750 and the yield to maturity is 10%?
The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...
The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a) What is the yield to maturity at a current market price of $849? $ b) What is the yield to maturity at a current market price of $1,146? $ c) Would you pay $849 for one of these bonds if you thought that the appropriate rate of YTM was 12%? Explain.
The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...
The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. What is the yield to maturity at a current market price of $828? Round your answer to two decimal places. % What is the yield to maturity at a current market price of $1,100? Round your answer to two decimal places. % Would you pay $828 for one of these bonds if...
Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have...
Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10.5%. The bonds have a yield to maturity of 11%. What is the current market price of these bonds? Round your answer to the nearest cent.
1, Jackson Corporation's bonds have 15 years remaining to maturity. Interest is paid annually, the bonds...
1, Jackson Corporation's bonds have 15 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 7%. The bonds have a yield to maturity of 8%. What is the current market price of these bonds? Do not round intermediate calculations. Round your answer to the nearest cent. 2,  bonds will mature in 12 years. The bonds have a face value of $1,000 and an 11.5% coupon rate, paid semiannually. The...
1. Jackson Corporation's bonds have 9 years remaining to maturity. Interest is paid annually, the bonds...
1. Jackson Corporation's bonds have 9 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds? Do not round intermediate calculations. Round your answer to the nearest cent. 2. Wilson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and...
Question 3 Danielle Motors’ bonds have 5 years remaining to maturity. Interest is paid annually, the...
Question 3 Danielle Motors’ bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8 percent. The bonds have a yield to maturity of 9 percent. Required What is the current market price of these bonds? Compute the current yield Compute the duration of the bond Compute the modified duration and interpret your results
1. Madsen Motors's bonds have 25 years remaining to maturity. Interest is paid annually; they have...
1. Madsen Motors's bonds have 25 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 7.5%; and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent. 2. Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 16 years to maturity, and a 9.5% YTM. What is the bond's price? Round your answer to the nearest...
The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds...
The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. What is the yield to maturity at a current market price of $880? Round your answer to two decimal places. % What is the yield to maturity at a current market price of $1,129? Round your answer to two decimal places. %
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT