Bond Questions explained in this answer
1-Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually, they have a $ 1,000 par value, the coupon interest rate is 8%, and the yield to maturity is 9%. What is the bond's current market price?
2-Nungesser Corporation's outstanding bonds have a $ 1,000 par value, a 9% semiannual coupon, 8 years to maturity, and an 8.5% YTM. What is the bond's price?
3-An investor has two bonds in his portfolio that have a face value of $ 1,000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.
a. What will the value of each bond be if the going interest rate is 5%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L.
b. Why does the longer- term bond's price vary more than the price of the shorter- term bond when interest rates change?
4-An investor purchased the following 5 bonds. Each bond had a par value of $ 1,000 and an 8% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell and each then had a new YTM of 7%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table: Price @ 8% Price @ 7% Percentage Change 10- year, 10% annual coupon 10- year zero 5- year zero 30- year zero $ 100 perpetuity
5-Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $ 1,000 par value and a coupon rate of 9%.
a. What is the yield to maturity at a current market price of ( 1) $ 829 and ( 2) $ 1,104?
b. Would you pay $ 829 for each bond if you thought that a " fair" market interest rate for such bonds was 12%- that is, if rd = 12%? Explain your answer
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