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In: Finance

a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value...

a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield?

b. Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

  1. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 5%. At what price would the bonds sell?
  2. Suppose that 2 years after the initial offering, the going interest rate had risen to 11%. At what price would the bonds sell?
  3. Suppose that 2 years after the issue date (as in part a) interest rates fell to 5%. Suppose further that the interest rate remained at 5% for the next 10 years. What would happen to the price of the bonds over time?

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jeff jeffy answered 2 years ago
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