Question

In: Finance

Use financial calculator A $1,000 bond has a 8.5 percent coupon and matures after eleven years....

  1. Use financial calculator

  2. A $1,000 bond has a 8.5 percent coupon and matures after eleven years. If current interest rates are 10 percent, what should be the price of the bond? Assume that the bond pays interest annually. . Round your answer to the nearest dollar.

  3. $  

  4. If after four years interest rates are still 10 percent, what should be the price of the bond? . Assume that the bond pays interest annually. Round your answer to the nearest dollar.

    $  

  5. Even though interest rates did not change in a and b, why did the price of the bond change?

    The price of the bond with the longer term is -Select-lesshigher than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigher interest payments and receive the principal within a longer period of time.

  6. Change the interest rate in a and b to 6 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

    Price of the bond (eleven years to maturity): $  
    Price of the bond (seven years to maturity): $  

    Even though the interest rate is 6 percent in both calculations, why are the bond prices different?

    The price of the bond with the longer term is -Select-less/ higher than the price of the bond with the shorter term as the investors will collect the -Select-smaller/ higher interest payments for a longer period of time

Solutions

Expert Solution

A $1,000 bond has a 8.5 percent coupon and matures after eleven years. If current interest rates are 10 percent, what should be the price of the bond? Assume that the bond pays interest annually. . Round your answer to the nearest dollar.

$902.57

If after four years interest rates are still 10 percent, what should be the price of the bond? . Assume that the bond pays interest annually. Round your answer to the nearest dollar.

$926.97

Even though interest rates did not change in a and b, why did the price of the bond change?

The price of the bond with the longer term is less than the price of the bond with the shorter term as the investors will collect the smaller interest payments and receive the principal within a longer period of time.

Change the interest rate in a and b to 6 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

Price of the bond (eleven years to maturity): $1197.17
Price of the bond (seven years to maturity): $1139.56

Even though the interest rate is 6 percent in both calculations, why are the bond prices different?

The price of the bond with the longer term is higher than the price of the bond with the shorter term as the investors will collect the higher interest payments for a longer period of time

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A corporate bond matures in 14 years. The bond has an 8 percent coupon and a...
A corporate bond matures in 14 years. The bond has an 8 percent coupon and a par value of $1,000. Interest is paid semiannually. The bond is priced to yeild 6.0%. What is the bond's current price? Hint: Should it be above or below the face value? Group of answer choices $987.52 $1,006.57 $1,187.64 $1,199.35 $1,212.24
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has...
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has a face value of $1,000 and currently sells for $985. What is the bond’s current yield and yield to maturity? The face value for WICB Limited bonds is $250,000 and has a 6 percent annual coupon. The 6 percent annual coupon bonds matures in 2035, and it is now 2020. Interest on these bonds is paid annually on December 31 of each year, and...
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has...
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has a face value of $1,000 and currently sells for $985. What is the bond’s current yield and yield to maturity?
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has...
A bond matures in 15 years and pays an 8 percent annual coupon. The bond has a face value of $1,000 and currently sells for $985. What is the bond’s current yield and yield to maturity? $
A bond matures in 20 years and pays an 8 percent annual coupon. The bond has...
A bond matures in 20 years and pays an 8 percent annual coupon. The bond has a face value of $1000 and currently sells for $900. What is the bond's current yield and yield to maturity?
1) A 25-year, $1,000 par value bond has an 8.5 percent annual payment coupon. The bond...
1) A 25-year, $1,000 par value bond has an 8.5 percent annual payment coupon. The bond currently sells at a discount (for $925 exactly). If the YTM doesn't change from its current level, what will the price be five years from now? a)  $930.11 b) $884.19 c) $977.20 d) $953.36 2) GE's balance sheet as of today is as follows: Long-term debt (bonds, at par) $23,500,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings          4,000,000 Total debt and...
A 9.5 percent semiannual coupon bond matures in 7 years. The bond has a face value...
A 9.5 percent semiannual coupon bond matures in 7 years. The bond has a face value of $1,000 and a current yield (CY) of 9.77 percent. What is the bond’s yield to maturity (YTM)? a. 9.77% b. 5.23% c. 10.46% d. 9.50% e. 10.06%
Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 30 years. The bond...
Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 30 years. The bond pays interest annually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent? (round your answer to two decimal places)
CEPS Group has a 8.45 percent coupon bond outstanding that matures in 13 years. The bond...
CEPS Group has a 8.45 percent coupon bond outstanding that matures in 13 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 8.36 percent compounded semiannually?
A bond that matures in 13 years has a ​$1,000 par value. The annual coupon interest...
A bond that matures in 13 years has a ​$1,000 par value. The annual coupon interest rate is 11 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 17 percent. a. What would be the value of this bond if it paid interest​ annually? b. What would be the value of this bond if it paid interest​ semiannually?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT