8.30 Rachette Corp. issued 20-year bonds five years ago. These bonds, which pay semiannual coupons, have...

8.30 Rachette Corp. issued 20-year bonds five years ago. These bonds, which pay semiannual coupons, have a coupon rate of 9.735 percent and a yield to maturity of 7.95 percent.

a. Compute the bond’s current price.

b. If the bonds can be called after five more years at a premium of 13.5 percent over par value, what is the investor’s realized yield?

c. If you bought the bond today, what is your expected rate of return? Explain.

Solutions

Expert Solution

Expected rate of return is YTM 7.95%, as YTM<YTC bonds will not be called and investors expect less rate of return.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Victorian Treasury has issued 20-year bonds that pay semiannual coupons at a rate of 2.135%. The...

Victorian Treasury has issued 20-year bonds that pay semiannual coupons at a rate of 2.135%. The current market rate for similar securities is 3.5%. Assume the bond has a face value of $1000. a. What is the bond’s current market value? b. What will be the bond’s price if rates in the market decrease to 1.98%. c. Refer to your answers in part b. How do the interest rate changes affect premium bonds and discount bonds? d. Suppose the bonds...

Victorian Treasury has issued 20-year bonds that pay semiannual coupons at a rate of 2.135%. The...

Ten years ago, The Romulus Company issued bonds that pay annual coupons, have a face value...

Ten years ago, The Romulus Company issued bonds that pay annual coupons, have a face value of $1,000, have a coupon rate of 10.44%, and were scheduled to mature 22 years after being issued. One year ago, you bought one of those bonds for $1,034.68. The bond just paid a coupon. If the percentage return on your bond was 3.37% over the past year (from 1 year ago to today), what is the price of the bond today? Now in...

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a couponrate of 9 percent....

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 9 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of the par value, what is the YTM?

Shanken Corp. issued a 20-year, 4.6 percent semiannual bond 4 years ago. The bond currently sells...

Shanken Corp. issued a 20-year, 4.6 percent semiannual bond 4 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 11 years left to maturity; the book value of this issue is $40 million and the bonds sell for 51 percent of par. The company’s tax rate is 21 percent....

Shanken Corp. issued a 20-year, 5.1 percent semiannual bond 2 years ago. The bond currently sells...

Shanken Corp. issued a 20-year, 5.1 percent semiannual bond 2 years ago. The bond currently sells for 97 percent of its face value. The book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 15 years left to maturity; the book value of this issue is $40 million and the bonds sell for 52 percent of par. The company’s tax rate is 25 percent....

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity....

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity. This bond was originally issued at par with a $1,000 face value. The coupon rate on the bond is 8%. Today, the yield-to-maturity (YTM) is 10%. Assume an investor bought the bond at the time it was issued and sold it today. What is the holding period return for the five year period of investment?

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity....

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity. This bond was originally issued at par with a $1,000 face value. The coupon rate on the bond is 8%. Today, the yield-to-maturity (YTM) is 10%. What was yield to maturity of this bond when it was issued? PLEASE give step by step solutions! 8% 9% 8.5% 7.5%

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity....

Five years ago, Rock Steady Corp issued a semiannual coupon bond with seven years until maturity. This bond was originally issued at par with a $1,000 face value. The coupon rate on the bond is 8%. Today, the yield-to-maturity (YTM) is 10%. What was yield to maturity of this bond when it was issued? Show calculations.

Five years ago, the State of Ohio issued $2,000,000 of 7% coupon, 20-year semiannual payment, tax-exempt...

Five years ago, the State of Ohio issued $2,000,000 of 7% coupon, 20-year semiannual payment, tax-exempt bonds. The bonds had 5 years of call protection, but now the state can call the bonds if it chooses to do so. The call premium would be 5% of the face amount. Today 15-year, 5%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2%. Note that because these are tax-exempt bonds, taxes are not relevant....

Subjects