Explore BrainMass

# Bond Valuation

## BrainMass Solutions Available for Instant Download

### Yield to maturity and rate of return

You buy an 8 percent coupon, 10-year maturity bond for \$980. A year later, the bond price is \$1,100. a. What is the new yield to maturity on the bond? b. What is your rate of return over the year?

### Bonds Valuations/Coupons

49. What is the yield to maturity, to the nearest percent, for the following bond: current price is \$908, coupon rate is 11 percent, \$1,000 par value, interest paid annually, eight years to maturity? (a) 11 percent (b) 12 percent (c) 13 percent (d) 14 percent 50. What is the current price of a \$1,000 par value bond matur

### Yield to Maturity, Interest Rate, Longer Maturity or Higher Coupon Rate

In determining the yield to maturity on a bond at a given interest rate, you get a value below the current market price, in the next calculation should you use a higher or lower interest rate or a longer maturity or higher coupon rate?

### Discussing Bond Refunding

Question: Margaret Kimberly, CFO of Charles River Associates, is considering whether or not to refinance the two currently outstanding corporate bonds of the firm. The first one is an 8 % perpetual bond with a \$1000 face value with \$75 million outstanding. The second one is a 9% perpetual bond with the same face value with \$87.5

### BONDS

Bowden Manufacturing intends to issue callable, perpetual bonds. The bonds are callable at \$1,250. One year interest rates are 12 percent. There is a 60 percent probability that long-term interest rates one year from today will be 15 percent. With a 40 percent probability, long-term interest rates will be 8 percent. To simplify

### Callable Bonds and Selling Bonds at Par

Bowdeen Manufacturing intends to use callable perpetual bonds. The bonds are callable at \$1,250. One-year interest rates are 12%. There is a 60\$ probability that long-term interest rates one year from today will be 15%. With a 40% probability, long term interest rates will be 8%. To simplify the firm's accounting, Bowdeen w

### Choosing between bonds

4. An investor must choose between two bonds: Bond A pays \$92 annual interest and has a market value of \$875. It has 10 years maturity. Bond B pays \$82 annual interest and has a market value of \$900. It has two years to maturity. a. Compute the current yield on both bonds? b. Which bond should be select based on your

### What will be the value of each of these bonds when the going rate of interest is (1) 5 percent,

The Garraty Company has two bond issues outstanding. Both bonds pay \$100 annual interest plus \$1,000 at maturity. Bond L has a maturity of 15 years, and Bond S a maturity of 1 year. a. What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that

### Bond price / duration

What will happen to price of a bond given the following? Yield-to-maturity = 6% Duration = 4 Interest rates rise 1% If interest rates are going to fall, which of the following would you prefer? Why? Bond A with duration = 9 Bond B with duration = 3 What is the conversion price on a bond given the follow

### return on total assets

The total assets of the ABC Company on January 1, 19x9 were \$2.3 million and on December 31, 19x9 were \$2.5 million. Net income for 19x9 was \$188,000. Dividends for 19x9 totaled \$75,000, interest expenses totaled \$70,000, and the tax rate was 30%. The return on total assets for 19x9 was closest to: A) 9.5%. B) 6.8%. C)

### T-bills and Risk Premium

1. Why do US T-bills have lower interest rates than large-denomination negotiable CDs? 2. What would likely happen to the risk premium on corporate bonds if brokerage commissions were lowered in the corporate bond market? 3. If income tax exemption on municipal bonds were abolished, what would happen to the interest rates

### A \$500,000 bond issue

A \$500,000 bond issue on which there is an unamortized discount of \$40,000 is redeemed for \$475,000. Journalize the redemption of the bonds. Account Debit Credit

### Interest Rate Effect

Please help with the following problem. Go to Table 10-1 which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 11 percent to 8 percent: a. What is the bond price at 11 percent? b. What is the bond price at 8 percent? c. What would be you

### YTM Problem

I have a bond that matures in 10 years and sells for 985. the face value is \$1,000 with 7% annual coupon, I know how to get the current yield which is 7.107% and the Yield at the maturity is 7.126% but I don't know how to figure out the price of the bond when the maturity remains constant for three years exactly from today? 4/2

### Suppose you bought a bond that will pay \$1,000 in 20 years

Suppose you bought a bond that will pay \$1,000 in 20 years. No intermediate coupon payments will be made. If the appropriate interest rate is 8%. a. What is the current price of the bond? b. What will the price be 10 years from today? c. What will the price be 15 years from today? Assume the interest rate does not chan

### Excel - PV function

As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, will mature in eight years, and have a coupon rate of 7.5% on a face value of \$1,000. Currently, the bonds are selling for \$900. a. If your required return is 9% for bonds in this risk cla

### Stocks and Bonds

1.What is the difference between stocks and bonds? 2.Which represents more risk to the company? Why? 3.Does a company receive money when its stock is traded in the secondary market? 4.How does the company affect the price of its stock? 5.Why is a company concerned about its stock price in the secondary market?

### Bond Price and Yields

A. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 7 percent. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15 percent. What has happened to the price of the bond? b. Suppose

### Bond Yield to maturity

A bond has 10 years until maturity, a coupon rate of 8 percent, and sells for \$1,100. a. What is the current yield on the bond? b. What is the yield to maturity

### Solving for Bond Pricing

1. A 6-year Circular File bond pays interest of \$80 annually and sells for \$950. What is its coupon rate, current yield, and yield to maturity? 2. Bond Pricing - If Circular File wants to issue a new 6-year bond at face value, what coupon rate must the bond offer?

### Financial Management: CAPM

1) Q9-3, The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices." Is this statement true or false?

### Yield to Maturity

I am confused about purchasing a 10% bond and my broker keeps saying it has a 9% yield to maturity. Can you explain this for me?

### Refund the old issue of bonds outstanding

The Robinson Corporation has \$50 million of bonds outstanding that were issued at a coupon rate of 11 3/4 percent seven years ago. Interest rates have fallen to 10 3/4 percent. Mr. Brooks, the vice-president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Mr. Brooks would like

### Bonds and Debts and Interest

How does the bond rating affect the interest rate paid by a corporation on its bonds?

### Bond Prices and Yields

Several years ago, Castle in the Sand Inc., issued bonds at face value at a yield to maturity of 7%. Now with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15% What has happened to the price of the bond? The investors believe that

### Bond Contribution to Purchased of Bond

A company has just issued a bond with a \$1 000 face value and a coupon rate of 5.25%. The bond has a life of 10 years, pays semi-annual coupons, and has the yield to maturity of 7.5%. You and your friend decided to buy one. You will receive first half of all coupons and your friend will receive the rest of coupons and the Face

### Relationships between interest rates and bond prices

What is the relationship between interest rates and bond prices? When must the yield to maturity of a bond equal the current yield? What makes some bonds sell at a premium while others sell at a discount?

### Important Information about Constant Growth Stock

1. What is the constant growth stock? How are constant growth stocks valued? 2. Indicate whether each of the following actions will increase or decrease a bond's yield to maturity: a. A bond's price increases. b. The company's bonds are downgraded by the rating agencies. c. A change in the bankruptcy code makes it more

### Yield to Matury and Yield to Call on the Bond

A. What is the yield to maturity (YTM) for a 10% Treasury bond with a price of 130 and semi-annual payments that matures in 25 years? b. What is the yield to call (YTC) on the bond in part a. that is callable at par (\$100) in 10 years?

### Bond Value

Midland Oil has \$1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is a. 7 percent b. 10 percent c. 13 percent North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed divident