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Bond Valuation

Bond Valuation Example Problems

1. Suppose a five year, $1000 bond with annual coupon has a price of $900 and yield to maturity of 6%. What is the bond's coupon rate? 2. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit's dividend to row by 6% per year. What is its price per share if its equity cost of capital is 11% 3. A huge n

Bond trading at premium or discount; maturity, yield, credit spread

1. Consider a five-year, default-free bond with annual coupons of 5% and a face-value of $1000. a) Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain. b) What is the yield to maturity on this bond? c) If the yield to maturity on this bond increased to 5.2%, what

MBA Finance

1. Assume that a bond will make payments every six months as shown on the following time-line (using six months periods): 0------1------2-------3---------------------20 $20 $20 $20 $20 + $1000 a) What is the maturity of the bond (in years)? b) What is the coupon rate (in percent)? c) What

Important information about Bond entries

Boone Company issued $240,000 of 8%, 20-year bonds on January 1, 2007, at face value. Interest is payable annually on January 1. Prepare the journal entries to record the following events. (a) The issuance of the bonds (b) The accrual of interest on December 31, 2007. (c) The payment of interest on January 1, 2008. (d) T

Goff Computer cost of capital, cost of equity and cost of debt

Goff Computer, Inc (GCI): Determine the cost of capital You have recently been hired by Goff Computer, Inc (GCI), in the finance area. GCI was founded eight years ago by Chris Goff and currently operates 74 stores in the Southeast. GCI is privately owned by Chris and his family and had sales of $97 million last year. GCI

The firm also has $40,000,000 in face value of 7.5% coupon bonds outstanding.

The firm also has $40,000,000 in face value of 7.5% coupon bonds outstanding. These bonds were also issued three years ago and currently have 12 years left to maturity. They pay the interest on coupons semiannually. The bonds currently trade at 104% of par. 1.What would you probably pay if you bought one of these bonds today?

Face value of 7.5% coupon bonds outstanding.

The firm also has $40,000,000 in face value of 7.5% coupon bonds outstanding. These bonds were also issued three years ago and currently have 12 years left to maturity. They pay the interest on coupons semiannually. The bonds currently trade at 104% of par. 1.What would you probably pay if you bought on e of these bonds toda

Year Bond Semiannual Coupon Annum

2) An airline knows that it will need to purchase 20,000 metric tons of jet fuel in three months. It wants some protection against an upturn in prices using futures contracts. The company can hedge using heating oil futures contracts traded on NYMEX. The notional for one contract is 42,000 gallons. There is no futures contra

Price and yield of zero coupon bonds

Three years ago, the firm issues 300,000 30 year, zero coupon bonds. The bonds have a face value of $1,000 and originally sold for $76.45. Currently, the bonds sell for $97.61. What is the combined Market Value of the Zero Coupon Bonds today? What is the Yield on the Zero Coupon Bonds. Remember = these are 30 year bonds

Evans Corporation Price of Bonds in four bond rating categories

The yield to maturity for 25-year bonds is as follows for four different bond rating categories: Aaa - 9.4% Aa1 - 9.6% Aa2 - 10.0% Aa3 - 10.2% The bonds of Evans Corporation were rated as Aal and issued at par a few weeks ago. The bonds have been downgraded to Aa2. Determine the new price of the bonds, assuming a

Worth of Bond

Three years ago (Apr '07) you invested in a mortgage backed bond originally issued in Apr 2000. When it was issued (in 2000), it was sold as a 20-year bond at par with an 8% coupon, and semiannual payments. a) In Apr. 07 (when you bought it), the yield to maturity on this bond was 6%. What was its value at that time ('07)?

Determining Price of Annual Coupon Bond: Example Problem

A company has outstanding bonds with a 6 year maturity, $1,000 par value and 7% coupon paid semiannually and those bonds sell at their par price. This same company has another bond with the same risk, maturity and par value but this second bond pays a 7% annual coupon. What is an estimate of the price of the annual coupon bond?

Bond Issued and Bond Flotation Costs

Company issued 10 year bonds yesterday at their par value of $1,000. Bonds pay $60 in interest every six months, and their price has remained at the $1,000 issue price. Company has determined an additional $2,000,000 is needed and will issue new 10 year, $1,000 par bonds that pay $40 in interest every six months. If both bonds p

Price of the annual coupon bond

A company has outstanding bonds with a 6 year maturity, $1,000 par value and 7% coupon paid semiannually and those bonds sell at their par price. This same company has another bond with the same risk, maturity and par value but this second bond pays a 7% annual coupon. What is an estimate of the price of the annual coupon bond?

Concept

Which of the following statements is the most correct and why? A.If a bond sells for less than par, then its yield to maturity is less than its coupon rate. B. If a bonds sell at par, then its current yield will be less than yield to maturity. C. Assuming that both are held to maturity and are equal risk, a bond selling

Bond Value Semiannual Payments

Assume that you wish to purchase a 25yr bond that has a maturity value of $1000 and makes semiannual int payments of 45. If you require a 7 percent yield to maturity on this investments, what is the maximum orice you should be willing to pay for the bond?

Rarely Traded BBB Corporate Bond & T-Bond Transaction

All else content, where would a financial intermediary (dealer) profit more on a given dollar transaction: from the spread of one t-bond transaction or the spread on one transaction of a rarely traded BBB corporate bond? Explain.

Valuation of a Private Firm Using Public Firm Fiancial Records

I'm trying to determine the valuation of a private firm. I have two questions regarding the role book value and the competence of its current management play in determining its valuation. I also am trying to fully understand what role does using financial records for public firm of approximately the same size, plays in deter

LIQUIDITY PREMIUM

Kay Corporation's 5-year bonds yield 7.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1

Current market value

In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) $23,500,000 Preferred stock 2,000,000 Common stock ($10 p

Default risk premium

Keys Corporation's 5-year bonds yield 7.70% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0

Inflation Premium

Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.20%, the default risk premium for Crockett's bonds is DRP = 1.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds

Current market value

In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) $23,500,000 Preferred stock 2,000,000 Common stock ($10 p

Default Risk Premium of Bonds

Koy Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Koy's bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1)

Capital Valuation

Use the following information to answer questions 3 thorough 4: Suppose a company is going to issue new bond which has an 6% coupon, 30-year maturity with par value of $1000 paying 60 semiannual coupon payments of $30 each. Assume that the market interest rate for this bond is 6% a. What is the price of the bond? b. What wo

Determining Amount to Pay for Bond: Example Problem

Your client has been offered a 5 year, $1,000 par value bond with a 10% coupon. Interest on this bond is paid quarterly. If your client is to earn a simple rate of return of 12%, compounded quarterly, how much should your client pay for this bond?

Bonds

Taussig Corp.'s bonds currently sell for $1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to

Important information about Yield to Maturity

Quigley Inc.'s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?