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Bond Valuation

Permanent assets financing

ABC corporation is determining whether to support $125,000 of its permanent current assets with a bank note or short-term bond. The firms bank offers a two-year note where the firm will receive $125,000 and repay $150,000 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, ABC can s

Calculating the Maximum Price to Pay for a Bond

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?

Selling Price and Required Contribution Margins

Please help with the following problem involving selling price and required contribution margins. Anna & Anna Corporation is a small table manufacturing company operating in the north of Puerto Rico. Managers estimate the following costs per unit (one table) Direct material (DM) $45.00 Direct labor (DL) $20.00 Variab

Price of Bonds and Interest Rates Drop

Suppose two bonds (Bond P and Bond D) were issued five years ago when the interest rate was 9%. The coupon rate (annual payment) for Bond P and D were 9% and 5%, respectively. Now, with five years left in the bond's life, the interest rate drops to 7% per year. Show how bond price has been changed over time. If you are consideri

A) What is the annual yield-to-maturity of each bond if the yield is compounded annually? b) Consider the prices of zero coupon bonds above, what is the fair price of a coupon bond that pays a coupon of $10 at year 1, $10 at year 2, $10 at year 3 and repays the principal of $100 at year 3? c) What is the annual yield-to-maturity of the coupon bond in b)?

These are the prices for zero coupon bonds per $1,000 of face value: Maturity Price 1 yr $951.5 2 yr $895.6 3 yr $825.4 Show all work and formulae a) What is the annual yield-to-maturity of each bond if the yield is compounded annually? Show work and formulas b) Consider the prices of zero coupon bonds above, what is

50 multiple choice questions

Please see attached! 1. Financial management is concerned with which of the following? a. Creating economic wealth b. Making investment decisions that optimize economic value c. Making business decisions that optimize economic wealth d. Raising capital that is needed for growth e. All of the above 2. Purchasing a

Spreedsheet Problem - Bonds and Stocks

7-8 Bond yields: A 10-year, 12 percent semiannual coupon bond, with a par value of $1,000, may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.) a. What is the bond's yield to maturity? b. What is the bond's current yield? c. What is the bond

Bond value - semiannual payment

An investor is considering purchasing a bond, with the intent of holding it for 5 years and then selling it in the market, with a $1,000 par value that pays interest every 6 months in the amount of $70 and has 10 more years until it reaches maturity. He is requiring a nominal annual rate of 16% but, due to an overall decrease in

Bond Problem: which bond should the investor select?

An investor in the 28 percent tax bracket is trying to decide which of two bonds to purchase. One is a corporate bond carrying an 8 percent coupon and selling at par. The other is a municipal bond with a 5 1/2 percent coupon and it, too, sells at par. Assuming all other relevant factors are equal, which bond should the invest

The Jackson Company's bonds

The Jackson Company's bonds mature in 4 years, have a par value of $1000 and an annual coupon payment of $80. The market interest rate for the bonds is 9%. What is the price of these bonds?

Sample problem

Solve problem number 7 and 20 Chapter 11. Problem 7 and 20 Approximately yield to maturity and the cost of debt : Problem 7 Airborne Airlines, Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $78 and is currently selling for $875. Airborne is in th

Yield to maturity

A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sales at a price of $515.16. The company's federal-plus-state-tax rate is 40%.What is the firm's component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate).

Stock Price for Year Earnings

1. a. Big Chair Corporation has an ROE of 16% and a plowback ratio of 50%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%. 1. b. What price do you expect Big Chair Corporation shares to sell for in 3 years?

Current corporate bond yield is upward sloping

What does it mean when a current corporate bond yield is upward sloping? Assume that the current corporate bond yield curve is upward sloping. Under this condition, then we could be sure that... a Inflation is expected to decline in the future. b The economy is not in a recession c Long-term bonds are a better buy t

Duration Measures

Can you explain what duration measures? Why is duration important to a bond investor?

Determing the Yield-to-Call

As a bond investor, you have been offered a secondary bond as follows: exactly 5 years remaining to final maturity, 8% coupon payable on a semi annual basis, offer price of 106 yield to 3.2863% to maturity. The bond is callable 2 years from today with a premium of 1.50% of face value, ie redeemable at 101.5. You are concerned

Bonds: market price, default risk premium, beta coefficient

1.) J. Corp.'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? 2.) A treasury bond that matures in 10 years has a yield of 6%. A 10- year corpo

Bond value

A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875. If the yield to maturity remains at its current rate, what will the price be 5 years from now? a. $839.31 b. $860.83 c. $882.90 d. $904.97 e. $927.60

Difference between this bond's YTM and its YTC

McCue Inc.'s bonds currently sell for $1,250. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. 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 rat

Yield to maturity computations for bonds

What is the yield to maturity on a 10 year, 9 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or premium tell you about the relationship between rd and the bond's coupon rate? What is the current yield, the capital gains yield,

Calculation of Gross Profit and Municipal Bonds

1. Concisely explain the economic role of brokers, dealers, investment bankers and the role of the New York Stock Exchange specialist (please, make sure that your answer cover the entire question). 2. Calculate the amount of excess reserve of a bank with 15,000,000 of reserve and 100.000,000 of deposits if the reserve requir

Implicit interest for a zero coupon bond

Suppose a firm needs to raise $10 million by issuing 10-year zero coupon bonds. The firm's cost of debt is 8%. Compute the total implicit interests for the first year (or year 1) and the last year (or year 10).

Tundra Tots Ch 7 Liquidation: How much will creditors and shareholders receive?

Tundra Tots is being liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is attached. Fixed assets are sold for $25,000,000 and current assets are sold for $18,000,000. All fixed assets are pledged as collateral for mortgage bonds. Subordinated debentures are subordinate only to notes payable. Tr

Bond Duration Calculation

Calculate the effective duration of a bond to a 100 basis point change in interest rates with a 6-1/4 coupon, 10-years remaining to maturity, and an asking quote of 110.7811 (decimal, not 32nds). Calculate the effective convexity to a 100 basis point change of the bond in Question 5. Calculate the total percentage price ch

Financial Analysis Using Excel: Bond Valuation

After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semi-annual payments): Bond A Bond B Settlement Date 12/15/2007 12/15/2007 Maturity Date 4/15/2014 6/15/2025 Coupon Rate 5.00% 9.50% Price $8

Steps for Estimating Price of a Coupon Paying Bond

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