8-Marriot Corporation has two bond issues outstanding, each with a par value of $1,000. Information about...

8-Marriot Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds? Does this tell us anything about the relationship between coupon rate and interest rate risk?

Bond A: 10 years to maturity, 0 percent coupon, market interest rate is 9.62 percent.

Bond B: 10 years to maturity, 10 percent coupon, market interest rate is 9.62 percent.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Bond Valuation: Venchi Industries has outstanding a $1,000 par-value bond with an 8% coupon interest rate....

Bond Valuation: Venchi Industries has outstanding a $1,000 par-value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date. If interest is paid annually, find the value of the bond when required return is (1) 7%, (2) 8%, (3) 10%. Indicate for each case in part a whether the bond is selling at a discount, at a premium, or its par value. Using the 10% required return, find the bonds value when interest...

Bond valuation Lahey Industries has outstanding a $1,000 par-value bond with an •8% coupon interest rate....

Bond valuation Lahey Industries has outstanding a $1,000 par-value bond with an •8% coupon interest rate. The bond has 12 years remaining to its maturity date. •a. If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, and (3) 10%. •b. Indicate for each case in part a whether the bond is selling at a discount, at a premium, or at its par value. •c. Using the 10% required return,...

1....Madison Corporation has a $1,000 par value bond outstanding with a coupon rate of 9% interest....

1....Madison Corporation has a $1,000 par value bond outstanding with a coupon rate of 9% interest. Interest payments are made semiannually. The bond matures in 20 years. If the yield to maturity for similar bonds is 9%, what is the value of the bond? Select one: A. $1,644 B. $1,000 C. $935 D. $908 2....What is the yield to maturity for $1,000 par value bond that pays a coupon rate of interest of 11%, has seven years to maturity, and...

a) On March 1, 2016, Corporation issues a $1,000 par value bond with a 10 percent...

a) On March 1, 2016, Corporation issues a $1,000 par value bond with a 10 percent coupon (paid semi-annually) that matures in exactly two years. If the yield to maturity is 7%, at what price should the bond sale? b) If the yield to maturity remains at 7%, at what price should the bond sell on May 1, 2016 (2 months after issue)? what is the dirty price on May 1, 2016? c) Actions by the Fed cause market interest rates...

Consider the following information: 1) Bonds outstanding: 80,000. Each bond sells at its $1,000 par value....

Consider the following information: 1) Bonds outstanding: 80,000. Each bond sells at its $1,000 par value. The bonds are priced to provide a YTM of 8.6 percent. 2) Stock outstanding: 4 million shares. Current stock price = $40 per share. Book value = $28 per share. Current stock beta = 1.1. 3) The risk-free rate is 4%, the tax rate is 34%, and the expected return on the market portfolio is 12%. What is the weighted average cost of capital...

The Borrow and Build Inc. has an outstanding bond with the par value of $1,000, 10...

The Borrow and Build Inc. has an outstanding bond with the par value of $1,000, 10 years to maturity and annual coupon rate of 9%. The required rate of return on this particular class of bonds is 8% a) what is the maximum price you are willing to pay for this bond? b) what are teh current (interest) yield and capital gain yield on this bond? what happens to yield-to-maturity current-yield and capital gain-yield when this bond approaches its maturity?...

Toreal Metals, Inc. has a bond outstanding that has a $1,000 par value and a market...

Toreal Metals, Inc. has a bond outstanding that has a $1,000 par value and a market price of $1,000. The bond has 10 years remaining to maturity. Assuming an annual market interest rate of 12% and that the bond pays interest semiannually, what is the ANNUAL coupon rate on the bond?

(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual...

(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable-risk bond is 18 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? *Someone previously answered this with annually = $604.56 and semiannually = $596.89 and the annual number is incorrect*

Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond...

Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $106, payable semiannually, and is currently selling for $1,111. Octopus is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the...

Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond...

Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $84, payable semiannually, and is currently selling for $1,095. Octopus is in a 30 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. a. Compute the Yield to maturity on the old issue and use this as the Yield for the new issue. Yield on new...

Subjects