You are given two bonds (Bond A & Bond B) which have different payment schedule. Based on the following information, you wish to figure out which bond has a greater interest rate risk. (You need to calculate duration and volatility of bonds) o Bond A: 2 year discounted bond with face value of $1000. o Bond B: 2 year coupon
18. You wish to price a new 2-year Treasury note with face value =$1,000, coupon rate = 4%. You observe the prices of two treasury securities already trading in the market. What would the price of new 2 year Treasury note? (Annual coupon payment) o 1 year Treasury note with price = $980, coupon rate = 3%, face value = $1,000
1. When the demand for bonds _________ or the supply of bonds _________, interest rate rise. A. decreases; increases B. decreases; decreases C. increases; decreases D. increases; increases 2. When the price of a bond is _________ the equilibrium price, there is an excess demand for bonds and the price wil
The club auto parts company has recently organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, club will grow at an annual rate of 5 percent in the third year and beginning with the fourth year, should attain a 10 percent growth rate which will sus
There are a lot of terms utilized in the various aspects of bonds. Choose three terms that are most relevant in the investment process and explain what they are and why they are relevant.
Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 6%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if interest is paid on an annual basis versus a se
Please help with the following problem. Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 10%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if
Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Explain why or why not. What is the determining factor of whether a bond is sold at a discount, face, or premium?
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond? A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at
You are a financial engineer for a major bank who has created a strip bond by selling the coupon payments of an 8% coupon bond with a 9.5% yield to maturity separately from the par value payment at maturity (coupon payments are made semi-annually). If there are 12 years left to maturity and the par value is $1000, what is th
Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 pe
A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today? Question 1 options: 1) five month's interest 2) two month's interest 3) no difference 4) one
Indicate whether each of the following actions will increase or decrease a bond's yield to maturity: a. The bond's price increases. b. The bond is downgraded by the rating agencies. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. d. The
A. What are bond's key features? b. What are call provisions and sinking fun provisions? Do these provisions make funds more or less risky? c. How is the value of any asset whose value is based on expected future cash flows determined? g. What is interest rate (or price) risk? Which has more interest rate risk, an annual paym
Celine Dion Company issued $600,000 of 10% 20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight line method of amortization for bond premium or discount. Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The
1. Assume that the Treasury sold a $100,000, 30 year bond exactly twenty five years ago. That bond carried a coupon rate of 10.75%. Also assume that today a five year Treasury security yields 3.0%. How much would that 25 year old bond sell for today? (Note: for simplicity purposes only, assume annual interest payments on the bon
Please view attached file for clarity of the table. Question: What is the project's cost of equity? What is the appropriate discount factor to use for evaluating the refrigerator project? The following assumptions are used to determine the cost of capital. Historically, the company tried to maintain a debt to equity ratio
Bond X is a premium bond making annual payments. The bond pays an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8 percent, and also has 13 years to maturity. If interest rates remain unchanged, what do
Staind, Inc. has 7.5 percent coupons and bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price? Ackerman Co. has 9 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If
See attached file for clarity of the tables included. Please provide step-by-step solutions. Problem One: The following transactions occurred during the year. Indicate how each transaction affected the number of shares outstanding, the balances in Common Stock and Additional-Paid-in Capital. Assume a beginning balance of
Fin 534 Chapter 8 Problem 9 Explain why the yield of a bond that trades at a discount exceeds the bond's coupon rate? Chapter 8 Problem 24 Assume there are four default-free bonds with the following prices and future cash flows:
Brigit Hall has decided to establish a university endowment fund at T.T. Penguin's former university, using an $8 million donation from Penguin. The fund will be used to construct a new building in five years, which is expected to cost $10 million at that time. In the interim, Penguin would like to generate end-of-year scholarsh
Prepare journal entries to record the following transactions related to long term bonds of quirk Co. On April 1,2009 Quirk issued $500,000, 9% bonds for 537,868 including accrued interest. Interest payable annually on January 1 and the bonds mature on January 1, 2019. On July 1, 2011 Quirk retired $150.000 of the bonds at 102
Suppose that, due to an unexpected decline in federal income tax collections, the Treasury is compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. What would be some of the possible effects of this additional borrowing on the financial markets and the economy?
See the attachment. Problem One: (a). The yield to maturity on ACL bonds maturing in 2008 is 8.75 percent. The yield to maturity on a similar maturity U.S. Government Treasury bond in 7.06 percent and the yield on Treasury bills is 6.51 percent. What is the default risk premium on the ACL bond? (b) AKA is considering expan
What is the cost to a firm in an oligopoly that fails to take rivals' actions into account? Suppose the firm operates along demand curve D1, shown below, as if no firms will follow its lead in price cuts or price rises. In fact, however, other firms do follow the price cuts, and the true demand curve below price P1 lies below D1
If the Treasury announces plans to issue $50B of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates? Would prices and interest rates both decline? Would prices and interest rates both rise? Would prices rise and interest ra
An investor from Ohio can invest $1,000 in the following investments: (a) a municipal bond issued by the city of Columbus, Ohio with an interest rate of 5.5 percent; (b) a corporate bond with an interest rate of 8 percent; or (c) a preferred stock with a yield of 6 percent. Assuming the investor's marginal tax rate is 5
1. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions. XY 5.25%, (interest paid annually) for 20 years. AB 14 %, (interest paid annually) for 20 years. a. Which bond has a current yield that exceeds the yield to maturity? b. Which bond m
Problem One: For each of the following accounts, indicate whether the account normally possesses a debit (DR) or a credit (CR) balance. 1. Accumulated depreciation 2. Rent expense 3. Cash 4. Sales 5. Notes payable 6. Paid-in capital 7. Prepaid rent 8. Cost of goods sold 9. Depreciation expense 10. Merchan