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# Bond Valuation

### 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

### Bonds & Yields

Bond Yields. An AT&T 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? Bond Prices 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, w

### Bonds: calculate the price of each bond at the following time periods (complete the table below):

3. You own 2 bonds, A & B. Each bond matures in 4 years, has a par value of \$1000, and YTM of 10%. Bond A pays an 8% annual coupon; bond B is a zero coupon bond. Assume the market rate for these bonds stays at 10% over the next 4 years. A. Use PV tables to calculate the price of each bond at the following time periods (comple

### Dividends, retained earnings, and yield/Convertible, warrants, and derivatives

4. Springsteen Music Company earned \$820 million last year and paid out 20 percent of earnings in dividends. a. By how much did the company's retained earnings increase? b. With 100 million shares outstanding and a stock price of \$50, what was the dividend yield? (Hint: First compute dividends per share.) 10. The sha

### Accounting/Finance Multiple Choice

1) Comprehensive financial information about a company is found in its A) Corporate by-law (B) 10-K Report (C) Article of incorporation (D) Presidential address 2) You purchase 100 shares of KLM at \$40 a share by depositing the minimum amount of margin. If the initial margin requirement was 50% and the maintenance margin re

### Finding the Value of a Zero Bond: Example Problem

A zero bond is a kind of bond issues by an American government that pays no interest at all, simply the capital sum at the end. a) If interest rates are 6% what is the value today of a "zero" bond paying \$10,000, ten years from now? b) If interest rates suddenly halve to 3% a year, what is the same bond worth?

### Corporate bonds: real risk-free rate

The real risk-free rate is expected to remain constant at 3%. Inflation is expected to be 2% a year for the next 3 years, and then 4% a year thereafter. The maturity risk premium is 0.1% (t-1), where t equals the maturity of the bond. (The maturity risk premium on a 5 year bond is 0.4%.) A 5 year corporate bond has a yield of 8.

### T-bills and treasury bonds

Help with this problem: With the following data- -k* real risk rate = 4% -Constant inflation premium =7% -Maturity risk premium = 1% -Default risk premium for AAA bonds =3% -Liquidity premium for long-term T-bonds =2% Assume that a highly liquid market does not exist for long-term T-bonds, and the expected r

### Southeast Airlines Bonds

Southeast Airlines is considering tow alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: 1) Issue 60,000 shares of common stock at \$45 per share (cash dividends have not been paid nor is the payment of any contemplated) 2) Issue 10% 10 year bonds at par for \$2,700,000. It is e

### Study questions

1a. Assume you make a deposit of \$15,000 into your bank account. If the bank pays 5 percent simple interest, how much interest will you have earned after 8 years? b. How much interest will you earn after 8 years if the bank pays compound annual interest? 2. Specific Motors Company outstanding bond issue has a coupon rate of

### Stock and bond markets

Stock and bond markets: a. are independent of each other as to prevailing rates of return b. offer identical returns in order to compete for the investor's dollars c. would offer identical returns if the respective investments had identical terms to maturity d. offer higher returns that tend to move up and down toget

### Determining price of bond today

One year ago a \$1000 face value 6% coupon bond was selling for \$918.93. since then, the market return decreased by two percentage points. the bond pays interest semi-annually and now has four years to maturity. the bonds price today is?

### Implied 1-year forward rate

The YTM on a 1 year pure discount bond is 4%, while the YTM on a 2 year pure discount bond is 5%. Both bonds have a face value of \$1,000. What is the implied 1-year forward rate? If you believe that the 1-year spot rate one year from today is going to be 7%, outline a strategy that allows you to take advantage of your belief.

### Duration of Coupon Paying Bond

What is the Duration of a 10% annual coupon paying bond, with a face value of \$1,000, and 5 years to maturity? The yield to maturity on the bond is 11%. Assuming that immediately after the purchase of the bond the YTM changed to 9%; show that an investor whose holding horizon is equal to the duration of the above bond is immuniz

### Bond Calculations from Principal Amount

Please help with the following finance-related problem. In the March of 1994, you purchased a new 25-year bond. The principal amount (i.e. maturity value) of this bond is \$1,000 and it pays a coupon rate of 12%. a. If comparable bonds today (March of 2007) have a yield to maturity of 14%, what is your bond's current market

### Computing bond price and recording issuance

Stower Research issues bonds dated January 1, 2005, that pay interest semiannually on June 30 and December 31. The bonds have a 20,000 par value, an annual contract rate of 10% , and mature in 10 years. For each of the following three separate situation, (a) determine the bonds' issue price on January 1, 2005, and (b) prepare

### Bond Valuation Problems

Bond Valuation - Chapter End Problems 6.8 (Yield to Call Ex): Six years ago, The Singleton Company sold a 20 -year bond issue with a 14 percent annual coupon rate and a 9 percent call premium. Today, Singleton called the bond. The bonds originally were sold at their face value of \$1,000. Compute the realized rate of r

### Coupon Rate

In the bond has a face value of 1,000,000, at what price did the bond sell for that is maturing in 2007? What is the current yield for the bond maturing in 2007? See attached file for full problem description. Suppose you found the following bond quote for AT & T in the Wall Street Journal % Bond Curr Vol.

### Price of a Coupon Bond

Suppose you buy a 6 percent coupon bond today for 950. The bond has a face value of 1000, has 16 years until maturity, and pays interest semi-annually. When you initially purchased the bond,what rate of return did you expect to earn on your investment? Three (3) years after purchasing the bond you decide to sell it. At that time

### Valuing Debt & Debt Policy

THEME 1 1. Explain how changes in debt-equity ratio impact the beta of the firm's equity. Provide a mathematical example to support your analysis. 2. What are the ramifications of a firm having a "less than optimal" or "wrong" capital structure? THEME 2 1. In describing an optimal investment portfolio for someon

### Journalize transactions for bonds payable and investments in bonds

Journalize the selected transactions Selected transactions completed by Hubcap Products Inc. during the fiscal year ending July 31, 2006, were as follows: a. Issued 10,000 share of \$25 par common stock at \$52, receiving cash. b. Issued 8,000 shares of \$100 par preferred 8% stock at \$125, receiving cash. c. Issued \$1

### Bond Maturity Practice Problem

Please include any formulas if applicable (so I can do more practice problems) How much should you pay for a \$1,000 bond with 10% coupon, annual payments, and five years to maturity if the interest rate is 12%

### Bonds- Rate of Return, Price at different time periods

1. Six years ago, the Singleton Company sold a 20-year bond issue with a 14 percent annual coupon rate and a 9 percent call premium. Today, Singleton called the bonds. The bonds were originally sold at their face value of \$1,000. Compute the realized rate of return for investors who purchased the bond when they were issued and w

### Johnson Inc. - Component Weight of Debt

Johnson Inc. issued \$1,000, 25-year bonds 5 years ago at a coupon rate of 10% compounded semiannually. There were 3,000 bonds issued and similar bonds are now selling to yield 12% annually. Johnson does not have preferred stock and the market value of equity is \$3,000,000. Calculate the component weight of debt based on market v

### Stock Valuation/Annuities/Fixed Income Securities

7. Delbert Harris has just retired at age 60. His Roth retirement savings account currently has a value of \$2,000,000. Delbert expects to live for thirty more years. During that time, Delbert wishes to withdraw money from his retirement account every 6 months. Delbert's financial advisor is confident that Delbert can earn a semi

### Bond Price for Zheng Enterprises

Zheng Enterprises, issued \$100 million of 15% coupon rate bonds in January 2000. The bonds have an initial maturity of 30 years. Bonds were sold at par and were callable in five years at 1110 (110 % of par value). It is now 2005, and interest rates have declined such that bonds of equivalent remaining maturity now sell to yie

### Price of a bond with call provision

Zabberer Corp bonds pay coupon rate of 12% annual interest and maturity value of \$1000. Bonds are scheduled to mature at end of 14 years. Company has the option to call the bonds in 8 years at a premium of 12 % above maturity value You believe company will exercise its option to call the bonds at that time. If you require a pre

### Bond rates and maturity

Borden's 8 3/4% bond matures April 15, 2016 paid and compounded annually. Determine value of a \$1000 bond as of April 14, 2004 to investor who holds bond until maturity required Rate of Return: a) 7% b) 9% c) 11%

### Financing Expenditures, Majority Shareholders & Attractive Bonds

1. Discuss the advantages and disadvantages of financing capital expenditures through the use of internally generated cash. Cite cases where it is more effective and efficient to fund through internal funds and external funding sources; why would a financial manager choose one method over the other? 2. Find two publicly trad

### Bond Yields-yield to maturity, yield to call, current yield; value of stock

1) Last year Clark company issued a 10-year ,12 % semiannual coupon bond at its par value of \$1000. The bond can be called in 4 yrs at a price of \$1,060, and it now sells for \$1100. a. What are the bond's yield to maturity and its yield to call? Would an investor be more likely to actually earn the YTM or the YTC? b What i