Question

In: Finance

With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of...

With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of​ 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 7​% and will mature on this day 32 years from now. The yield on the bond issue is currently 6.45​%. At what price should this bond trade​ today, assuming a face value of ​$1000 and annual​ coupons

Solutions

Expert Solution

Price of the Bond today

The Price of the Bond today the Present Value of the Coupon Payments plus the Present Value of the face Value

Face Value of the bond = $1,000

Annual Coupon Amount = $70 [$1,000 x 7%]

Annual Yield to Maturity = 6.45%

Maturity Period = 3 Years

The Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $70[PVIFA 6.45%, 32 Years] + $1,000[PVIF 6.45%, 32 Years]

= [$70 x 13.40600] + [$1,000 x 0.13531]

= $938.42 + $135.31

= $1,073.73

“Hence, the Price of the Bond today = $1,073.73”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.  

--The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.   

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of...
With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of​ 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.7​% and will mature on this day 38 years from now. The yield on the bond issue is currently 6.4%. At...
Firms raise capital from investors by issuing shares in the primary markets. Does this imply that...
Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?
David raised working capital from local investors by issuing bonds. The bonds, which have a face...
David raised working capital from local investors by issuing bonds. The bonds, which have a face value of $40,000, were sold on July 1st, 2018. They have a coupon rate of 7.40 percent and pay interest monthly for three years with the first payment due on August 1st, 2018. The last payment, which includes repayment of principal, is July 1st, 2021. David’s investors agreed on an issue price of 106. Required: Prepare journal entries to record all transactions and adjustments...
Your firm wishes to raise 10,000,000 by either issuing regular coupon bonds or issuing zero coupon...
Your firm wishes to raise 10,000,000 by either issuing regular coupon bonds or issuing zero coupon bonds. The regular coupon bonds will have a 10% coupon rate. Both issues are expected to mature in 12 years,pay annual, and have a yield of 6%. a.If they opted to go with regular bonds, what is the firms total repayment in year 12? b.If they opted to go with zero coupon bonds, what is the firms total repayment in year 12? please explain...
Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and...
Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and development at its Skynet division. Each bond will have a face value of $1,000 and will mature in 10 years. The bonds will pay semi-annual coupons with a coupon rate of 6.5%. The yield to maturity on the bonds is 10%. What is the fair price for one of the bonds? A) $700.23 B) *$781.91 C) $876.54 D) $933.41 E) $1,000.00 The answer is...
Caspian Sea Drinks needs to raise $26.00 million by issuing bonds. It plans to issue a...
Caspian Sea Drinks needs to raise $26.00 million by issuing bonds. It plans to issue a 19.00 year semi-annual pay bond that has a coupon rate of 5.14%. The yield to maturity on the bond is expected to be 4.79%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond, so round to 0 decimals)
In Australia, the Federal and State governments can raise funds by issuing bonds. Please list the...
In Australia, the Federal and State governments can raise funds by issuing bonds. Please list the major investors names of these fond .
How are bonds utilized by investors and by a company desiring to raise capital? Primary objective...
How are bonds utilized by investors and by a company desiring to raise capital? Primary objective of the company , pros and cons of bonds, risk and return of bonds
Metlock Inc. has decided to raise additional capital by issuing $189,000 face value of bonds with...
Metlock Inc. has decided to raise additional capital by issuing $189,000 face value of bonds with a coupon rate of 9%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $131,750, and the value of the warrants in the market is $23,250. The bonds...
Kintel, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a...
Kintel, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. The company’s investment banker states that investors would use an 10.27 percent discount rate to value such bonds. Assume semiannual coupon payments. At what price would these bonds sell in the marketplace? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and Bond price to 2 decimal places, e.g. 15.25) Market rate $ How many bonds would the firm have...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT