Explore BrainMass

Bond Valuation

Calculate the Price of a Bond Given Various Interest Rates

A bond has a face value of $100, a coupon rate of 8% and 5 years to redemption at par. The annual interest payment has just been made. (a) What is the price of the bond if market interest rates are; (i) 6% (ii) 7% (iii) 8% (iv) 10% (b) What is the duration of the bond if market interest rates are 7%? (c)

Present Value of a Discount Bond

Find the present value (price) of a discount bond with a one-year term to maturity and a 10% yield. Next, find the price of a ten-year discount bond that also yields 10%. Now, increase the yield on both instruments to 11%. On a percentage basis, which instrument demonstrates the greatest change in price? What does this indicate

Which coupon rate should the bonds have in order to sell at par value?

Please help with the following problem. Provide step by step calculations. Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 10 percent. There is a 50 percent probability that long-term interest rates one year from today

Calculate the current price of given securities.

1) Valuation - zero-coupon bond A U.S. Government bond has a face amount of $10,000 with 8 years to maturity, yielding 3.5%. What is the current selling price? 2) Valuation - corporate bond A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is either a

Calculate the fair value of option, stock and bond as the case may be.

1. Valuation - zero-coupon bond A U.S. Government bond with a face amount of $10,000 with 8 years to maturity is yielding 3.5%. What is the current selling price? 2. Valuation - options The following information refers to a six-month call option on the stock of XYZ, Inc. Price of the underlying stock: $50

Are you better off playing the lottery or buying bonds?

5.3 Are you better off playing the lottery or saving the money? Assume you can buy one ticket for $5, draws are made monthly, and a winning ticket correctly matches 6 different numbers of a total of 49 possible numbers. The probabilities: In order to win, you must pick all the numbers correctly. Your number has a 1 in 49 cha

Stocks or bonds over time periods

Are stocks or bonds better investments over: -A one-year period? Explain your reasoning. -A five-year period? Explain your reasoning. -A twenty-five year period? Explain your reasoning.

Calculating Investments and Stocks

Question 1: You would like to have $1,000,000 accumulated by the time you turn 65, which will be 40 years from now. How much would you have to put away each year to reach your goal, assuming you're starting from zero now and you earn 10% annual interest on your investment? Question 2: You hold a portfolio of stocks c

Calculating Bond Maturity

An investor is considering a bond that currently sells at a discount ($953) to the face value of $1,000. The coupon rate is 9.25% paid semiannually. If there are 15 years left on the bond what is the yield to maturity?

Bond Values and Yields

Describe or define and discuss a bond issued by a city that is having a little bit of a problem with creditworthiness (but not "junk" level yet) and how it is differentiated from other bonds. Then explain how valuing bonds is done and how interest rates affect their value. Consider the importance of the yield-to-maturity (YTM) i

A Brief Debt Based on the Bond Ratings of Tom-Tom

1. Based on the bond ratings of Tom-Tom give a brief debt outlook of the company and a recommendation of buy, sell or neutral on the company's bonds. 2. Based on the bond ratings of Vodafone give a brief debt outlook of the company and a recommendation of buy, sell or neutral on the company's bonds.

Calculate the bond price and YTM in the given case.

A three-year bond has 8.0% coupon rate and a face value of $1000. (A). If the yield to maturity on the bond is 10%, calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments. (B). Assuming that this bond trades for $1,112, what is the YTM for this bond assuming that the bond mak

Investor's risk aversion

Please help me understand these finance questions: 1) How is an investor's risk aversion reflected in a bond's maturity risk premium? 2) Would an increase in the volatility of long-term interest rates cause a bond investor to pay more or less for a non-callable bond that had high convexity? 3) If you purchase a callabl

Article Review: Who Issues Bonds?

The Article Review layout is simple and consists the body of the review containing three sections with the following headings: 1. Overview/Summary 2. Opinion/Analysis 3. Relevance to Financial Management. Your reference sources are limited to the Wall Street Journal, Financial Times, New York Times, Barron's, Investors'

Bond price, current yield, YTM, ROI

1.     You are considering the purchase of a 7%, 15-year bond that pays interest annually. If the yield to maturity on the bond is 6%, what price will you pay?  Round your answer to the nearest cent.  2.     What is the current yield on the bond from part a? Round your answer to the nearest tenth

Financial Management

1. A bond which has a yield to maturity greater than its coupon interest rate will sell for a price a. below par. b. at par. c. above par. d. what is equal to the face value of the bond plus the value of all interest payments. 2. If you were to put $1,000 in the bank at 6% interest each year for the next ten years,

Examining the reasoning behind issuing bonds

Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why? What is the determining factor of whether a bond is sold at a discount, face value, or premium? What is the straight-line method of amortizing discount and premium on bonds payable? Provide an explanation of the process.

WACC & Capital Structure

Please help me calculate WACC and the three methods of calculating the cost of equity. Assist with calculating it on the 2011 10k totals for Exxon Mobil, Chevron and Conoco-Phillips.


1. Over the past 5 years, NBA's common stock earnings per share have grown from $0.62 to $0.91. If an investor is NBA stock is assumed to have a required rate of return of 14%, what is the current value of NBA if its current dividend is 0.12? Assume EPS will continue to grow at a constant rate. 2. Morton Industries' common st

Evaluate the Activities & Impact of the U.S. Treasury Department

When federal, state, and local governments issue securities, what key roles do they play in financial markets, particularly in the bond and mortgage markets, and how do they affect you? Describe these financial markets in which goverments participate and how they function. What securities have federal, state, and local governmen

Finance Management

1. (Bond valuation) National Steel 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should yo

Using Straight-Line Amortization to Compute the Gain/Loss

Hurst, Incorporated sold its 8% bonds with a maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By Octob

Addresses the issuance of general obligation bonds

Assume that Kelly County issues $2,000,000 in general obligation bonds to build a new fire station and $8,000,000 in revenue bonds to finance the upgrade of their water treatment facility. How will these transactions affect the funds of the county? a. Financial assets of the Capital Projects Fund will increase by $10,00

High Yield Bond Questions

1. Are High Yield (formerly referred to as "Junk") Bonds necessarily a bad investment? On what would this depend? 2. What is the financial impact on a company when their debt rating is viewed as "High Yield"? 3. What specific steps must a firm undertake to improve their credit rating under the current rating system?

Corporate Finance - Bonds

1. Security: AAA AA A BBB BB Yield (%) 6.2 6.4 6.7 7.0 7.5 Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rating of 6.5%, paid semiannually. The above table shows the yield to maturit

Term Premium calculation

How is premium definition used in the example below? What credit rates, bonds or being used? "Valuation measures show government debt has become more expensive. The term premium, a model created by economists at the Fed, increased to negative 0.39 percent yesterday after reaching negative 0.26 percent on March 19, the least e

Retiring Debt Bond Issues

On January 1, 2011, Tango-In-The-Night, Inc., issued $75 million of bonds with a 9% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of each year. The market rate of interest on January 1, 2011, for bonds of this type was 11%. the company closes its books on December 3

Expected Return and Pay Out

1. Company A pays a dividend of $2.40 and its stock price is expected to remain constant at $16. What rate of return will an investor enjoy by owning the stock? 2. Company B pays a dividend of $12. Its stock is expected to grow in price at a rate of 4%. How much should you pay for the stock if your expected rate of return is

Interest and Treasury Bond Problem

Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent chance of continued steady growth, and a 30 percent probability of inflationary growth. For each possibility, Ima has developed an interest rate forecast for long-term Treasury bond Interest Rate