Question

In: Finance

MCQ: Legacy Inc. recently issued bonds that mature in 10 years. They have a par value...

MCQ: Legacy Inc. recently issued bonds that mature in 10 years. They have a par value of $1,000 and annual coupon of 6%. The current market interest rate is 8.5%. If the bonds pay interest semiannually, what will be the price of the bonds? Select one:

a. 582.73

b. 833.82

c. 782.42

d. 1200.85

e. 1125.75

Expert Solution

Solution:

The price of the bond is = $ 833.82

The solution is Option b.

Statement showing calculation of Price of the bond

Sl.No.	Particulars	Period	Cash Flow (1)	Annuity Factor @ 4.25 % (2)	Discounted Cash Flow *(3) = (1) (2)**
1	Half yearly Interest ( $ 1,000 * 6 % * (6/12))	1 – 20	$ 30	13.294366	$ 398.830980
2	Maturity Amount	20	$ 1,000	0.434989	$ 434.989000
3	Price of the bond = $ 398.830980 + $ 434.989000	$ 833.819980
4	Price of the bond ( when rounded off to two decimal places )	$ 833.82

Note :

1.Since Interest is payable half yearly and the no. of years to maturity is 10 years, the price per bond is calculated by converting 10 years into (10 *2) = 20 half yearly periods

2.Thus, the Interest earned per period = $ 1,000 * 6 % * (6/12) = $ 30

3. Since the Interest is paid semi annually the discount rate used is = 8.5 % * (6/12) = 4.25 %

4. Interest earned during the 20 periods is discounted using PVIFA ( 4.25 %, 20 ) = 13.294366

5.The Present value of $ 1,000 recoverable at maturity is to be calculated using the half yearly discount rate of ( 8.5 % * (6 /12) ) = 4.25 %

Thus PVF ( 4.25 %, 20 ) = 0.434989

jeff jeffy answered 1 year ago

BankMart Inc. recently issued bonds that mature in 8 years. They have a par value of...

BankMart Inc. recently issued bonds that mature in 8 years. They have a par value of $1,000 and an annual coupon of 4%. Your required rate of return is 10%. Hint: This bond pays a fixed amount of coupon at the end of each period and pays the par value when it matures. annual coupon payment = par value * annual coupon rate. What is the maximum price you want to pay for the bond?

Masson Inc. recently issued noncallable bonds that mature in 10 years.

Masson Inc. recently issued noncallable bonds that mature in 10 years. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?

1. FIN3100’s outstanding bonds mature in 10 years, have a par value of $1,000, and make...

1. FIN3100’s outstanding bonds mature in 10 years, have a par value of $1,000, and make an annual coupon payment of $70. The market yield on the bond is currently 10%. What is the bond's price? B.) FIN3100 issued bonds with a 15-year maturity two year ago. The bonds have a 7% coupon, make one payment per year, and sold at their $1,000 par value. Market rate at the time was 7%. Now, two year later, the market rate has...

Starbucks recently issued 10-year, $1,000 par value bonds at an 10% coupon rate.. Two years later,...

Starbucks recently issued 10-year, $1,000 par value bonds at an 10% coupon rate.. Two years later, similar bonds are yielding investors 8%. At what price are Starbucks bonds selling? What would the bonds be selling for if yields had risen to 10%?

Bangladesh Petroleum's 10% coupon rate, BDT 1000 par value bonds that mature in 10 years are...

Bangladesh Petroleum's 10% coupon rate, BDT 1000 par value bonds that mature in 10 years are callable 6 years from now at a price of BDT 1050 and redeemable at par in maturity. The bonds currently sell at a price of BDT 1353.54. What could be the internal rate of return as an investor of this bond, if the market interest is expected to stable for the following 6 years and later to decline?

ABC Inc. recently issued $1,000 par bonds at a 18.96% coupon rate. If the bonds have...

ABC Inc. recently issued $1,000 par bonds at a 18.96% coupon rate. If the bonds have 19 years to maturity and a YTM of 18.16%, what is the current price of the bond? Assume semi-annual compounding.

The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and...

The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 19.0 percent. Assume interest payments are made semiannually. a. Determine the present value of the bond’s cash flows if the required rate of return is 19.0 percent. (Round factor value calculations to 5 decimal places, e.g. 0.52755. Round other intermediate calculations to 2 decimal places, e.g. 52.75. Round final answer to nearest dollar amount.) !!!!!ANSWER IS $1,000!!!! b. How...

O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their...

O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal annual, not semiannual yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $700. What is the bond's nominal coupon interest rate? 6.15% 6.58% 7.01% 5.72% 4.86%

XYZ Corp.’s outstanding bonds have a $5,000 par value and they mature in 5 years. Their...

XYZ Corp.’s outstanding bonds have a $5,000 par value and they mature in 5 years. Their yield-to-maturity is 8%, annual coupon rate is 6%, and semi-annual compounding. (a) What's the bond's current market price? (b) What is the bond’s current yield? (c) If the Yield-to-maturity is 4%, what's the bond's current market price? please write the answer and how you worked it out on here instead of paper (d) If the Yield-to-maturity is 4%, what is the bond’s current yield?

Question 1 XYZ's corporate bonds mature in 20 years, have a par value of $1,000, and...

Question 1 XYZ's corporate bonds mature in 20 years, have a par value of $1,000, and an annual coupon rate of 8% (paid on an annual basis). The market requires an interest rate of 7% (annual) on these bonds. What is the bond's price (report answer as a positive number)? $1,066.32 $1,118.01 $1,241.89 $1,105.94 None of the above. Question 2 A corporate bond has a maturity of ten years, face value of $1,000, and an annual coupon rate of 6.75%....