Question

In: Finance

Cox Media Corporation pays an 11 percent coupon rate on debentures that are due in 25...

Cox Media Corporation pays an 11 percent coupon rate on debentures that are due in 25 years. The current yield to maturity on bonds of similar risk is 12 percent. The bonds are currently callable at $900. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Find the market value of the bonds using semiannual analysis?

Do you think the bonds will sell for the price you arrived at in part a?

Solutions

Expert Solution

(a)-The market value of the bonds using semiannual analysis

  • The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
  • The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
  • Here, the calculation of the Bond Price using financial calculator is as follows

Variables

Financial Calculator Keys

Figures

Par Value/Face Value of the Bond [$1,000]

FV

1,000

Coupon Amount [$1,000 x 11.00% x ½]

PMT

55

Market Interest Rate or Yield to maturity on the Bond [12.00% x ½]

1/Y

6

Maturity Period/Time to Maturity [25 Years x 2]

N

50

Bond Price/Current market price of the Bond

PV

?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $921.19.

“Hence, the Price of the Bond will be $921.19”

(b)-“NO”. We do not sell the Bond for the price arrived at in part a. Because the call price of the Bond ($900) is less than the current market price of the Bond ($921.19).

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Cox Media Corporation pays a coupon rate of 11 percent on debentures that are due in...
Cox Media Corporation pays a coupon rate of 11 percent on debentures that are due in 25 years. The current yield to maturity on bonds of similar risk is 10 percent. The bonds are currently callable at $1,020. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator...
Cox Media Corporation pays a coupon rate of 10 percent on debentures that are due in...
Cox Media Corporation pays a coupon rate of 10 percent on debentures that are due in 20 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,150. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator...
Pine Systems Inc. pays an 11 percent coupon rate on debentures that are due in 10...
Pine Systems Inc. pays an 11 percent coupon rate on debentures that are due in 10 years. The current yield to maturity on bonds of similar risk is 8.5 percent. The bonds are currently callable at $1,110. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. a. Find the market value of the bonds using semiannual analysis. b. Do you think the bonds will sell for the price...
Consider a bond with a coupon rate of 8 percent that pays semiannual coupon and matures...
Consider a bond with a coupon rate of 8 percent that pays semiannual coupon and matures in eight years. The market rate of return on bonds of this risk is currently 10 percent. What is the current value of a $1,000 face value bond? $891.62 $830.58 $854.08 $843.07
On January 1, 2015, the Mayfield Corporation issued $500 million of zero-coupon debentures, due December 31,...
On January 1, 2015, the Mayfield Corporation issued $500 million of zero-coupon debentures, due December 31, 2025. The proceeds of the bond sale totaled approximately $192.772 million. Assuming semi-annual compounding, estimate the effective interest rate on the zero-coupon debentures. Calculate the interest expense incurred by the Mayfield Corporation during the first year that the debt was outstanding.
On January 1, 2015, the Mayfield Corporation issued $500 million of zero-coupon debentures, due December 31,...
On January 1, 2015, the Mayfield Corporation issued $500 million of zero-coupon debentures, due December 31, 2025. The proceeds of the bond sale totaled approximately $192.772 million. Assuming semi-annual compounding, estimate the effective interest rate on the zero-coupon debentures. Calculate the interest expense incurred by the Mayfield Corporation during the first year that the debt was outstanding. Calculate the interest expense incurred by the Mayfield Corporation during the first year that the debt was outstanding. State your answer in $...
A bond that pays coupons annually is issued with a coupon rate of 4 percent, maturity...
A bond that pays coupons annually is issued with a coupon rate of 4 percent, maturity of 30 years, and a yield to maturity of 7 percent. What annual rate of return will be earned in the following situations by an investor who purchases the bond and holds it for 4 year if the bond’s yield to maturity when the investor sells is 8 percent? a) All coupons were immediately consumed when received. b) All coupons were reinvested in your...
Cullumber, Inc., has issued a three-year bond that pays a coupon rate of 8.0 percent. Coupon...
Cullumber, Inc., has issued a three-year bond that pays a coupon rate of 8.0 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.6 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)
Bond P is a premium bond with a coupon rate of 11 percent. Bond D is...
Bond P is a premium bond with a coupon rate of 11 percent. Bond D is a discount bond with a coupon rate of 5 percent. Both bonds make annual payments, have a YTM of 8 percent, and have five years to maturity.    Requirement 1: What is the current yield for bond P? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)      Current yield %    Requirement 2: What is the current yield...
11- ABC's has an outstanding bond with a coupon rate of 8 percent that matures in...
11- ABC's has an outstanding bond with a coupon rate of 8 percent that matures in 12 years. The bond pays interest annually. If the face value of the bond is $1,000 face value and the yield to maturity is 6 percent, find the following "Show your formula and calculations": Is this bond issued at discount, premium, or at par? Why? What is the value of the bond at the date of issuance? (you may use your financial calculator) What...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT