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Bond Valuation

Estimating Present Value of a Bond

Question: Calculate the present value of a bond that pays a coupon rate of 7% per year for 20 years, and matures in 20 years at its face value of $1000, using each of the following current market interest rates at the discount rates of:(a) 5%; (b) 7%; (c) 9%. Show your calculations.

Price a sequence of zero rates

Suppose you have the price a sequence of zero rates Maturity (Yrs) Zero rates (Continuous compounding) 0.5 5.20% 1 5.30% 1.5 5.30% 2 5.45% (a) If convert Zero rates to compound 12 times per annual, what is their value? (b) What is the zero rate for year 2.5 if a bond has coupon rate=9%,

Default and Interest-Rate Risk

A14. (Stock valuation) Suppose Toyota has non-maturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth? B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose P

Nominal Yield

Assume that you wish to purchase a 25-year bond that has a 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? Note that they are referring to semiannual payments. Usi

Comparing Borrowing Costs via Annual Percentage Yield

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

Corporate Finance and Cost of Capital

Helpful tip: The text is "Corporate Finance" 8th edition, Ross. Westerfield. Jaffe All calculations must be shown. For problems that have an Excel template, be sure to download the template from the publisher's web site, and save as an Excel file. Chapter 9: Problem 25 (template is available) Chapter 10: Problem 4 (template

Bond Valuations

Assume that you can buy a bond for $555 today. The bond will pay you $75 in annual coupon payments (i.e. interest payments) at the end of each of the next 12 years, plus repay the original $1000 par value of the bond at the end of the 12th year. What annual rate of return would you expect to earn on the investment (i.e., wha

Intel 9% coupon bond: What is average annual rate of return?

Assume the Intel Corporation's $1,000 face value 9 percent coupon rate bond matures in 10 years and sells for $1,100. If you purchase the bond for $1,100 and hold it to maturity, what will be your average annual rate of return on the investment? Please explain how you come up with answer.

Weighted Average cost of capital

As a memeber of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate of use when evaluating the purchase of new packing equipment for the plant. You have determined the market value of the firm's capital structure as follows: Source of Capital

Bond Transactions Long Term Bonds

On April 1, 2007, the Diamond Bottle Company sold $400,000 of long term bonds for $331,180. The bonds will mature in 10 years and have a stated interest rate of 9% and an effective yield rate of 12%. The bonds pay interest semi-annually on September 30 and March 31 of each year. The bonds are to be accounted for under the eff

Stocks, Equity and Rate of Return

1.) Twister Corporation is expected to pay a dividend of $7 per share one year from now on its common stock, which has a current market price of $143. Twister's dividends are expected to grow at 13%. a) Calculate the cost of the company's retained earnings. b) If the flotation cost per share of new common stock is

Finance Problems

Need help with these finance problems. Please show me each step on how you got the answer. Do not show me just the answers. I need each step worked out. Question 1: (Interest Rates) a. Assume the following conditions prevail in the economy at this time: Real rate of interest.......................2% Expected infl

Successful Finance for a Company

1. How does expertise in finance help a company become successful? Be specific and explain at least three ways. (TCO A) 2. Answer all five questions. Explain how you determined the answer and show your work. (TCO B) Questions: a. You want to borrow $1,000 from a friend for one year, and you propose to pay her $1,1

Philadelphia Electric Bonds

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. 1. If the yield to maturity for all three bonds is 8%, what i

Short Finance Problems

1) Data Corporation has a bond issue outstanding with an annual coupon rate of 7 percent and 4 years remaining until maturity. The par value of the bond is $1,000. Determine the current value of the bond if present market conditions justify a 14 percent required rate of return. The bond pays interest annually. . 2) Refer to Pr

Default Risk for 9.5% coupon bond: what is realized return on investment?

You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond. a. You receive the coupon payments for three years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is th

Fair Value of a $1,000 Bond

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?

Warrants and Coupon Rates

The ABC Corporation is setting its terms on a new issue with warrants. The bonds have a 30-year maturity and semiannual coupon. Each bond will have 25 warrants attached which give the holder the right to purchase one share of Random stock per warrant. ABC's investment banker estimates that each warrant has a value of $15.50. A s

What are the YTM and YTC on Rourke's bonds?

1) Rourke Motor Co. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1000 and their current market price is $1,130.35. However, Rourke may call the bonds in 8 years at a call price of $1,060. What are the YTM and YTC on Rourke's bonds? YTM= YTC= 2)

1) A financial institution that maintains some Treasury bond holdings decides to sell some Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will ______ and the position in futures contracts will result in a 2) The premium on an existing call option should ______ when the underlying stock price decreases

1) A financial institution that maintains some Treasury bond holdings decides to sell some Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will ______ and the position in futures contracts will result in a _______. a increase; gain b increase; loss c decrease; gain d dec

Yield to Maturity: Heymann Company bonds

Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and the coupon rate of 9 percent. What is the yield to maturity at the current market price of $829 or $1,104?

Gains and losses in investments in trading securities

#6 XYZ Company began operations in 2006. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement: 2006 2007 2008 Gains (losses) from sale of trading securities $ 15,000 $(20,000) $ 14,000 Unrealized holding losses on valuation of trading se

Financial: Calculate the coupon rate, current price, yield

The Reynolds Corporation issued $1,000 thirty-year bonds which pay $120 annually in interest. The bonds currently sell at par. (a) What is the coupon rate? (b) What is the current price of the bonds? (c) What is the current yield? (d) What is the yield to maturity?

Calculate yield to maturity (YTM)

1. What terms (or inputs) are needed to calculate yield to maturity (YTM)? How does this compare to calculating yield to call (YTC)? 2. Provide the steps taken to calculate YTM using a calculator or MS Excel. 3. Calculate Problem 7-2, at the end of Chapter 7 in your text, Fundamentals of Financial Management, and show yo

Financial Problem

Chpt. 4, 10 1. Assume IBM is expected to pay a total cash dividend of $3.60 next year and dividends are expected to grow indefinitely by 3 percent a year. Assume the required rate of return (i.e. equity holder's opportunity cost of capital) is 9 percent. Assuming this is the best information available regarding the future

Coupon bonds and interest question

X Company 7% coupon bonds pay interest semiannually. When u bought one it had 11 yrs to maturity and the appropriate discount rate was 9%. After 1 yr th discount rate on such bonds in 8% because of the improved financial health of the Company. If u sell the bond today, what would your capital gain be? Please show all calculat