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Bond Valuation

Stephens Security: Compare borrowing costs for two options

Stephens Security has two financing alternatives: (1) A publicly placed $50 million bond issue. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20 year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,000, the bond has a 9.25% annua

Bond coupon rate and maturity

You have paid $1,063 for a bond with 9 years remaining to maturity. Interest on the bond is paid semiannually. If current rate of return for similar investments is a nominal 8%, what is this bond's coupon rate? Round answer to two decimal places. Please provide formulas (not excel)

Value of Bonds and Company Bonds Maturing

Company has bonds maturing in 6 years and pays 6% interest semiannually on a $1000 face value. a) If required rate of return is 10%, what is the value of the bond? b) How would answer change change if interest rate was paid annually

Convexity of the bond

Calculate the convexity of the ABC bond Company Maturity (years) Coupon (%) Price Yiled to Maturity (%) ABC 4 10 98 10.63 DEG 8 9 87 11.53 GHI 22 11 102 10.76 JKL 28 10 90 11.17 Suppose market interest rates change by 50 basis points. Estimate the new price of the ABC

Financial accounting: Comparison of assets and equity bases

Laurel company has assets of $2 million and long-term, 10% debt of $1,200,000. Hardy Company has assets of $2 million and no long-term debt. The annual operating income (before interest) of both companies is $400,000. Ignore taxes. 1. Compute the rate of return on a. assets b. stockholder equity. 2. Evaluate the relative m

Finance Problems

1. Assume a $4,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 $1,000 $1,300 2 800 2,800 3 700 100 4 1,900 5 2,000 a. Under the payback met

Calculate the price of a bond given the coupon rate

You are contemplating buying a 4 3/4% coupon bond that makes semi-annual interest payments. The bond matures in 10 years and the yield-to-maturity currently is 4.18%. How much are you willing to pay for a face value of $1,000,000 of this bond? In addition, how much do you stand to gain or lose if YTM goes up by 0.25%?

Bond Price and Interest

Ricks Roofing Corporation's bonds have a 15-year maturity, a 7% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6%, based on semiannual compounding. What is the price of this bond?

Jim's Tire Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8%, then at what rate should Jim's Tire expect to issue new bonds?

Jim's Tire Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are curre

Bond and interest payments

A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 10%. How do I calculate the first semi-annual interest payment and the amortization of any bond discount or premium?

Yield curves for U.S. Treasury bonds

I am trying to graph the yield curve for U. S. Treasury bonds. I believe I saw it on MSN Money I'm not sure. I am also trying to graph the yield curve for AAA, AA, & A rated corporate bonds. Also why is the corporate bonds yield curve different than the U. S Treasury yield curve?

Interest rates and inflation effects on bonds

1. An investment offers a 13 percent total return over the coming year. Jim Kelly thinks the total real return on this investment will be only 7 percent. What does Jim believe the inflation rate will be over the next year? Interpreting Bond Yields Suppose you buy a 7 percent coupon, 20 year bond today when it's first issued.

Shor Company: Calculate and prepare Bond Journal Entries

During the year Shor Company issued several series of bonds. For each bond, record the journal entry that must be made upon the issuance date (Round to the nearest dollar; a calculator is needed for 2 and 3. 1. On March 15, a 20-year, $5000 par value bond series with annual interest of 9 percent was issued. Three thousand of

Yield to Maturity for Brownstone Corporation's Bonds

The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a.) What is the yield to maturity at a current market price of $829?

Treasury Securities yield to maturity bonds

All treasury securiities has a yield to maturity of 7%-- so the yield curve is flat. If the yield to maturiy on all Treasuries were to decline to 6%, which of the following bonds would have the largest percentage increase in price and why? A. 15 year zero coupon Treasury bond. B. 12 year Treasury bond with a 10% annual

Bond Value

Assume that you wish to purchase a 10-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $50. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Current yield / yield to maturity

An investor must choose between two bonds with par values of $1,000: Bond A pays $80 annual interest and has a market value of $800. It has 10 years to maturity. Bond B pays $85 annual interest and has a market value of $900. It has two years to maturity. a. Compute the current yield on both bonds. b. Which bond shou

The Present Value of Tax Shield

Southern Fried Foods has a $12 million bond issue outstanding with a coupon rate of 6.75 percent and a yield-to-maturity of 7.27 percent. What is the present value of the tax shield if the tax rate is 35 percent?

Micro Spinoffs, Inc: what is the after tax cost of debt?

Micro Spinoffs, Inc., issued 20-year debt one year ago at par value carrying a coupon rate of 8 percent (payable annually). Today, the debt is selling at $1,050. If the firm's tax bracket is 35 percent, what is the after-tax cost of debt for Micro Spinoffs?

Characteristics of bonds

All of the following are characteristics of bonds except a. in terms of priority, bonds are senior to both common stock and preferred stock. b. bonds have a stated maturity. c. the payments on bonds are compulsory. d. bonds are senior to common stock and junior to preferred stock. e. bond holders are creditors but not own

Implied annual interest rate

Suppose the current Treasury bond futures contract has a quoted price of 89-09. The terms of the contract are standard (20 years, 6% coupon paid semiannually). The implied annual interest rate on the contract is a. about 6 percent. b. about 12 percent. c. about 7.0 percent. d. about 14 percent. e. In fact, none of the an

Determine Coupon Rate, Current Yield, and Yield to Maturity

The Garland Corporation has a $1,000 par value bond outstanding with a $90 annual interest payment, a market price of $820 and a maturity date in five years. Find the following: a. The coupon rate. b. The current yield. c. The approximate yield to maturity. Thanks for your help!

Finance: 10 Multiple choice questions

1. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years? $2,245.08 $2,363.24 $2,481.41 $2,605.48 $2,735.75 2. A security analyst obtained the following information from Prestopino Products' financial statemen

Medellin Corp: Prepare journal entries for bond transactions

#3 On May 1, 2010, Medellin Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). (Assume bonds are ava

Cost of Equity Capital for David Ortiz Motors

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity is the on company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity capital?