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Bond Valuation

Bond Purchase

You are considering purchasing a bond at the end of this year. The bond has a coupon rate of 10.5 percent, interest payments are made annually, and the bond matures in 20 years. If your required pretax rate of return is 14 percent, what is the maximum price you would be willing to pay for a 20-year, 10.5 percent bond? Assume the

Valuation of bond with annual and semiannual coupon payments

Suppose that 5-year government bonds are selling on a yield of 4 percent. Value a 5-year bond with a 6 percent coupon. Start by assuming that the bond makes annual coupon payments. Then rework your answer assuming that the same bond pays semiannual coupons and the yield refers to a semiannually compounded rate. Further, how

Finance Questions (Gates Computers)

1. Gates Computers has the following data for the previous year: Net income = $200; Net operating profit after taxes (NOPAT) = $300; Total assets = $1,000; and Total net operating capital = $800. The information for the current year is: Net income = $500; Net operating profit after taxes (NOPAT) = $400; Total assets = $1,300; an

Total cost/price, expected stock price, project IRR

Can you help me get started with this assignment? 43. If the CEO of a firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to get a BETTER GRADE? In all cases, assume that other things are held constant.

Academic approach to Bond valuation

Suppose that General Motors Acceptance Corp issued a bond with a ten years until maturity.A face value of $1000 and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a. What was the price of this bond when it was issued. b. Assuming the yield to maturity remains constant

Zero Coupon yield curve

Can you help me get started with this assignment? Maturity (years) 1 2 3 4 5 YTM 5% 5.5% 5.75% 5.95% 6.05% a. What is the price per $100 face value of two-year, zero-coupon risk free bond? b. What is the price per $100 face value of a four-year,

Expected One-Year Interest Rate

Based on the following yields on zero-coupon bonds, calculate the expected one-year interest rate for year 4 Time to maturity - Yield to maturity 1 years - 6.00% 2 years - 7.00% 3 years - 8.32% 4 years - 8.49%.

Greater interest rate risk

Which has greater interest rate risk, a newly issued 10-year bond with a coupon rate of 6% or a newly issued 5-year bond with a coupon rate of 4%? Both bonds have the same yield to maturity. a) the 10-year, 6% coupon bond b) the 5-year, 4% coupon bond c) both bonds have the same level of interest rate risk d) there is not

Duration and Convexity of a Bond

Calculate the duration and convexity of a two-year bond, with an 8% coupon rate (coupons are paid semiannually), 10% yield-to-maturity and a face value of ?1000. If the yield increases by 50 basis points (=0.5%), how much does the price change? How incorrect is the linear estimation?

The Houston Corp. needs to raise money for an addition to its plant.

Question 1 The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Presently Houston Corp has earnings of $3 million and 750,000 shares

Dividend yield, YTM, YTC

1. The expected rate of return on the common stock of Northwest Corporation is 14 percent. The stock's dividend is expected to grow at a constant rate of 8 percent a year. The stock currently sells for $50 a share. Which of the following statements is most correct? a. The stock's dividend yield is 8 percent. b. The stock

Plano Co: How much gain should be reported on the sale of bonds?

During 2005, Plano Co. purchases 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2007 was $1,960,000. The bonds mature on March 1, 2012, and pay interest on March 1 and September 1. Plano sells 1,000 bonds on September 1, 2008, for $988,000, after the interest has been received. Plano uses straight-l

Finding Call Period for Bond

Mattco has 9% annual coupon, $1,000 face value bonds outstanding that mature in 10 years. However, the bonds can be called before maturity at a call price of $1,050. The bonds have a yield to call of 6.5% and a yield to maturity of 7.4%. How long until these bonds may first be called?

Time Value of Money in bond market value; zero growth in common stock

Valuation of common stock and bonds is an important financial task for investors. In the process of valuing bonds describe the relationship of time to maturity and market value (for premium, par-value, and discount bonds) and the relationship of required return to market value. For common stock define the zero growth (divide

Yield to maturity on a 30 year bond

Consider a 30-year bond issued two years ago with a 9 percent coupon rate and $1,000 par value. The bond makes semi-annual payments and currently sells for $906.51. What is the bond's yield to maturity? (YTM) Why is the bond is selling at a discount?

Risk Version and Interest Rate Risk

Applying this same logic to stocks, explain (a) how a decrease in risk aversion would affect stocks' prices and earned rates of return, (b) how this would affect risk premiums as measured by the historical difference between returns on stocks and returns on bonds, and (c) the implications of this for the use of historical risk p

Yield to maturity & the Yield to call

A bond with 25 years to maturity and 5 years to call sells for $964.50 and has an annual coupon rate of 11%. The bond will pay a call premium of one extra year's interest. The bond pays coupons semiannually. Calculate the yield to maturity. Calculate the yield to call.

Financial Markets and Stocks and Bond Quotations: 4 MCQ

Please see attached file. 2. An investor bought 100 shares of Venus Corporation common stock 1 year ago for $40 per share. She just sold the shares for $44 each, and during the year, she received four quarterly dividend checks for $40 each. She expects the price of the Venus shares to fall to about $38 over the next year.

What is the call price on the bonds?

Kennedy Gas Works has bonds which mature in 10 years, and have a face value of $1,000. The bonds have a 10 percent quarterly coupon (i.e., the nominal coupon rate is 10 percent). The bonds may be called in five years. The bonds have a nominal yield to maturity of 8 percent and a yield to call of 7.5 percent. What is the call pri

Impact of Discount and Premium

Impact of a Discount Berol Corporation sold 20-year bonds on January 1, 2008. The face value of the bonds was $100,000; and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $91,526 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount i

XYZ's seven-year $1,000 par bonds. What is expected rate of return?

The XYZ's seven-year $1,000 par bonds pay 9 percent interest. Your required rate of return is 7%. The current market value for the bond is $1,100. i. Determine the expected rate of return ii. What is the value of the bonds to you given your required rate of return? iii. Should you purchase the bond at the current market p

Bonds: How would bond value change if interest rates fall?

Suppose that 5-year government bonds are selling on a yield of 4 percent. Value a 5-year bond with a 6 percent coupon. Start by assuming that the bond is issued by a continental European government and makes annual coupon payments. Then rework your answer assuming that the bond is issued by the U.S. Treasury, so that the bond pa