Purchase Solution

Bond Price and Yields

Not what you're looking for?

Ask Custom Question

A. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 7 percent. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15 percent. What has happened to the price of the bond?

b. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80 percent of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?

Purchase this Solution

Solution Summary

The solution examines bond price and yields for Castles in the Sand, Inc.

Solution Preview

a)
Obviously, there is a drop in price.
When the bond was issued, the Price = $1000 = FV
And the annual return rate is the coupon rate = 7%
Then yearly payment ...

Purchase this Solution


Free BrainMass Quizzes
Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.