Question

In: Finance

Sheridan, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face...

Sheridan, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $863.92

1. What is the yield to maturity that an investor who buys them today can expect to earn? (Round answer to 3 decimal place, e.g. 5.275%.)

2. What is the effective annual yield? (Round answer to 3 decimal places, e.g. 5.275%.)

Expert Solution

a.Information provided:

Par value= future value= $1,000

Coupon rate= 4.6%/2= 2.30%

Coupon payment= 0.023*1,000= $23

Current price=present value= $863.92

Time= 8 years*2= 16 semi-annual periods

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PMT= 23

PV= -863.92

N= 16

Press the CPT key and I/Y to calculate the yield to maturity.

The value obtained is 3.4183.

Therefore, the yield to maturity is 3.4183*2= 6.8366% 6.837%.

b.The effective annual yield is calculated using the below formula:

Effective annual yield= (1+r/n)^n-1

Where r is the interest rate and n is the number of compounding periods in one year.

Effective annual yield = (1 + 0.0684/2)^2 – 1

= 1.0696 -1

= 0.0696*100

= 6.960%.

In case of any query, kindly comment on the solution.

jeff jeffy answered 1 year ago

Waterway, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face...

Waterway, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $901.92, what is the yield to maturity that an investor who buys them today can expect to earn? (Round answer to 1 decimal place, e.g. 5.2%.) Yield to maturity % What is the effective annual yield? (Round answer to 3 decimal...

Crane, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face...

Crane, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $867.92, what is the yield to maturity that an investor who buys them today can expect to earn? (Round answer to 3 decimal place, e.g. 5.275%.) Yield to maturity = (in %) What is the effective annual yield? (in %)

Cullumber, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face...

Cullumber, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $871.92, what is the yield to maturity that an investor who buys them today can expect to earn? (Round answer to 3 decimal place, e.g. 5.275%.) Yield to maturity % What is the effective annual yield? (Round answer to 3 decimal...

Sheridan, Inc., has outstanding bonds that will mature in six years and pay an 8 percent...

Sheridan, Inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. If you paid $1,093.30 today and your required rate of return was 5.5 percent. How much should you have paid for the bond? Did you pay the right price for the bond?

Novak Limited has bonds outstanding that will mature in 7 years. The bonds have a face...

Novak Limited has bonds outstanding that will mature in 7 years. The bonds have a face value of $1,000. The bonds pay interest semi-annually and have a coupon rate of 4.8 percent. If the bonds are currently selling at $899.96, what is the yield to maturity that an investor who buys them today can expect to earn? YTM? Effective annual yield?

ABC, Inc. currently has an issue of bonds outstanding that will mature in 31 years.

4) ABC, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $1000. What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity? 5) XYZ, Inc. has a bond issue outstanding with a $1,000 par value and a maturity of...

. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years....

. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $890. The bonds may be called in 4 years for 120.0% of the par value ($1200). What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity? 6. BBB, Inc....

XZYY, Inc. currently has an issue of bonds outstanding that will mature in 25 years. The...

XZYY, Inc. currently has an issue of bonds outstanding that will mature in 25 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 12.0% with annual coupon payments. The bond is currently selling for $959. The bonds may be called in 4 years for 112.0% of the par value. What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity?

Schumacher Homes has 8 percent bonds outstanding that mature in 13 years. The bonds pay interest...

Schumacher Homes has 8 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually. These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75. What is the yield to call if the current price is equal to 103.25 percent of par? 9.66 percent 7.75 percent 8.98 percent 8.06 percent

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?