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Bond Calculations: market price, yield to maturity, expected

11. Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

12. Ezzell Enterprises' noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity,

13. J. Harper Inc.'s stock has a 50% chance of producing a 35% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is Harper's expected return?

14. Ritter Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is Ritter's required rate of return?

Solution Preview

11. Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price
C is the coupon payment
r is the discount or yield rate
n is the period

Because we need to find the yield to maturity, we need to replace the information given into the ...

Solution Summary

This solution is comprised of a detailed explanation to compute the bond market price, yield to maturity of the bond, and expected return on the stock.

$2.19