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Bond Valuation

Nominal Versus Real Rate of Return on Bonds

The outstanding bonds of Winter Time Products provide a real rate of return of 3.10 percent. The current rate of inflation is 2.30 percent. What is the nominal rate of return on these bonds? 5.42 percent 5.40 percent 5.49 percent 5.45 percent 5.47 percent

T-bonds

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Bond maturity

Consider some bonds with one annual coupon payment of 7.25%. The bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds?

Finance: Bond Price

Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?

Debt Market Value

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

What is the inflation premium (IP) on 5-year bonds?

Crockett Corporation's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Crockett's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formu

Magid Corporation: Securities Valuation

The book is: Aswath Damodaran, Investment Valuation, Tools and Techniques for Determining the Value of Any Asset, Second University Edition, John Wiley & Sons, 2002 [ISBN 0-471-4190-5 (paper)] 1. Assume Magid Corporation has the following debt issues outstanding. Calculate the estimated market value of Issues 1 and 2 if th

Portfolio risk and return

The following probability distributions of returns for three stocks have been estimated: State of the Economy: Probability: Returns if State Occurs: Stock A Stock B Stock C Boom 40% 14% 8% -6% Normal 20%

Bond Valuation

Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

Calling Bonds

Which of the following factors will increase the likelihood that a company will choose to call its outstanding bonds? a. An increase in the yield to maturity on the company's outstanding bonds. b. An increase in the call price of the outstanding bonds. c. A reduction in the flotation costs associated with iss

Investing

Question Cliff Swatner is single, 33, and owns a condominium in New York City worth $250,000. Cliff is an attorney and doing well financially. His income last year exceeded $90,000, and he has sufficient liquid assets to supplement his condominium and other tangible assets. Several years ago, Cliff began investing in stocks and

Practice Finance Questions for quiz

___A 20-year original maturity bond with 1 year left to maturity has more interest rate price risk than a 10-year original maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates.) __You have just noticed in the financial pages of the local newspaper that you can buy a

Two bond issues outstanding (calculate current market rates)

Your company has two bond issues outstanding. They both have an 8% coupon rate and a $1,000 par value. One bond matures in two years while the other bond matures in 20 years. 1. Using an Excel spread sheet, calculate the value of each of these bonds if: a) Current market rates are 5%. b) Current market rates are 8%. c)

Interest-rate risk

Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday. a. If the yield to maturity for all three bonds is 8%, what i

Comprehensive Problem; Issuance, Classification, Reporting

Presented below are four independent situations. (a) On March 1, 2008, Heidi Co. issued at 103 plus accrued interest $3,000,000 9% bonds. The bonds are dated January 1, 2008, and pay interest semiannually on July 1 and January 1. In addition, Heidi Co. incurred $27,000 of bonds issuance costs. Compute the net amount of cas

Interest-rate risk

Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilElÂ's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday. a. If the yield to maturity for all three bonds is 8%, what

If Denver's cost of capital is 15 percent, defend which project would you choose. What is the average cash gain or (loss) during a typical month for Chadmark Corporation? Which of the following bank accounts has the highest effective return and why? Which of the following statements is most correct and why?

1. As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Cash Flows A B -$100,000 -$125,000 1 $25,000 $25,000 2 $30,000 $35,000 3 $30,000 $35,000 4 $25,000 $35,000

Finance: Bond value, Cash budget, Permanent assets financing, Balance Sheet

Question 1 Assume that you wish to purchase a 25-year bond that has maturity value of $1,000 and makes semiannual interest payments of $45. If you require a 7 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Question 2 Mark Corporation's budgeted

Straight line method of accounting for bonds: Preparing entries

On April 1, 20x7, a corporation issued $3,000,000, 8%, 10 year bonds at $95. The bonds pay interest each October 1 and April 1 and the corporation uses the straight line method to amortize premium or discount. Please, prepare entries for the issue of the bonds, for the first interest payment and for the adjusting (three entries)

Operating Income

7. Selected financial data of Alexander Corporation for the year ended December 31, 2011, is presented below: Operating income ...................................... $900,000 Interest expense ...................................... (100,000) Income before income tax .............................. $800,000 Income tax expen

Basic concepts related to Bonds

Please help with the following finance problems. Assume Sherry Company sells 2,500 of its five-year, $1,000 bonds paying 12 percent interest at 103. A. How much cash will the company receive from the bond sale? B. How much cash will the company pay to all of the bondholders each year as interest? C. Determine the

Finance Problems: Shawhan Supply

1. J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is the cost of debt to J & B? a. 12.0% b. 14.0% c. 8.4% d. 5.6% 2. Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% prefe

Description of Bond valuation

4. Suppose the current zero coupon yield curve for risk free bonds is as follows: Maturity (years) 1 2 3 4 5 YTM 5.00% 5.50% 5.75% 5.95% 6.05% a. What is the price per $100 face value of a two year, zero coupon, risk free bond? b. What is the price per $100 face value of a four year, zero coupon, risk free bond?

Finance (calculating maturity of a bond, coupon rate and face value)

Can you help me get started on this assignment? 2. Assume that a bond will make payments every six months as shown on the following timeline (using six-month 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 is the

Determining Maturity Risk Premium for Kelly's Bonds

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 2.6% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium?

Calculate Bond Payments, Coupon Rate, Face Value

Assume that a bond will make payments every six months. The timeline is 0, 1=$20, 2=$20, 3=$20....20= $20+$1000 What is the maturity of the bond (in years)? What is the coupon rate (in percent)? What is the face value?

What is the liquidity premium (LP) on Niendorf Corporation's bonds?

Niendorf Corporation has 5 year bonds with yield 9.50%, and 5-year T-bonds with yield 4.80%. Real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% with zero for T-bonds, and maturity risk premium for all bonds is found with the formu