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# Bond Valuation

### Relationship Between Bond Prices and Bond Yields

With interest rates at historic lows, you decide to invest in high yield corporate bonds. Fly-By-Night Inc., has a new 30 year bond issue that seems attractive. Each bond costs \$100 and has a fixed coupon of \$10, a yield of 10%. With \$1000 in your pocket, you decide to buy 10 of these bonds. You buy them at original issue and

### Estimate the value of given bond.

BioMax Inc. offers an 8 percent coupon bond that has a \$1,000 par value, semiannual coupon payments and 20 years of its original 25 years left to maturity. Which of the following statements is true if the market return on similar bonds is 10%? a. The bond will sell at a premium of \$1,198 because the coupon rate is greater th

### Finance

Determine how much that you would be willing to pay for a bond that pays a semi-annual coupon and has the following characteristics: (a) Annual Coupon Rateâ?"8%, Annual Yield to Maturityâ?"9%, and Number of Years to Maturityâ?"20. Determine the price that you would be willing to pay for a share of preferred stock that has

### EXCEL Exercises

How long would it take you to obtain \$1,000,000 if you saved \$2,500 quarterly and were able to obtain a 7% rate of return per year? Calculate the current yield on a bond that has the following characteristics: (a) NPER: 30, (B) Price--\$1,125, (c) Coupon Rate: 6%, (d) Market Rate of Interest: 4%. Calculate the Yield to Matu

### Individual or component costs of capital

Do problem ST-1. Using your answers to ST rounded to the nearest percent, compute the NPV of a project that cost \$10,000 and generates \$3,000 a year for 4 years. This needs to be do for A, B, C, and D. Study Problem 1 (Individual or component costs of capital) Compute the cost for the following sources of financing: a. A

### The Bradford Company: record bonds by Saxton-Bose 2011

The Bradford Company sold 12% bonds, dated January 1, with a face amount of \$85 million on January 1, 2011 to Saxton-Bose Corporation. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 14%. Interest is paid semiannually on June 30 and December 31. 1) Prepare the journal entry to

### Calculate the price and YTM of a bond; Calculate the monthly payment for a home mortgage using TVM

1) Assume semi annual payments, and these bonds are quoted in decimal dollars A-goldman sachs 5.75% coupon 10 yr maturity, p=101.963 a- calculate the yam for the bond B- 5.25% coupon, 9 yr maturity, ytm6.268 b- calculate the price for this bond assuming 1,000 face value 2) Suppose the following 2 programs are available f

### Treasury Bond Futures Contract: Obligations and Gain or Loss when the Price Changes

Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, \$100,000. a.) What is your obligation when you purchase this futures contract? b.) Assume that the Treasury bond futures price falls to 94 percent. What is your loss or gain? c.) Assume that the Treasury bond futures price

### Calculate the initial bond price and the new bond price after a downgrade from Moody's

A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 8.2%. A-rated bonds sell at yields of 8.5%. Assume a 10-year bond with a coupon rate of 7.7% is downgraded by Moody's from Aa to A rating. a. Calculate the initial price. (Do not round intermediate calculations

### Calculate the current yield and yield to maturity for a bond

A bond has 16 years until maturity, a coupon rate of 5.8%, and sells for \$1,109. a. What is the current yield on the bond? (Round your answer to 2 decimal places.) Current yield % b. What is the yield to maturity? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Yield to mat

### Bonds from AT&T, Dell, and IBM

Given the following data on bonds from AT&T, Dell, and IBM. Each bond has a par value of \$1000. (see the attached file) Calculate the value of the bond if your required return is 5 percent on AT&T, 6.5 percent on Dell, and 8 percent on IBM. Determine the yield to maturity (YTM) on the bonds given the following prices.

### Analyzing a Bond Portfolio

A porfolio consists of the following nine bonds: 1. Reynolds Amern 2. Donnelley RR 3. Altria Group 4. Alcoa Inc 5. Aetna Inc 6. KLA Tencor 7. Hospitality PRO 8. GE Capital 9. Sempra Energy Part A: 1. For each of the bonds listed above, find the coupon rate, payment date, rating, years to maturity, yields to call,

### 1-Is a dollar worth more today than tomorrow? Why or why not? What is the relationship between present and future value? 2-What effect does an organization's bond rating have on its cost of capital? What are some factors that affect a corporate bond's value? Why is it necessary to value a bond in terms of today's dollars? What is the effect of an increase in the prevailing interest rate on the valuation of a bond? What is the relationship between interest rates and bond prices? 3- Should an organization have more debt or more equity in its capital structure? Explain your answer. What are some limitations of utilizing debt instead of equity in the capital structure? 4- What effect do fixed costs have on an organization's operating leverage? Under what market conditions should financial leverage be emphasized? What is the danger of being a highly leveraged organization?

1-Is a dollar worth more today than tomorrow? Why or why not? What is the relationship between present and future value? 2-What effect does an organization's bond rating have on its cost of capital? What are some factors that affect a corporate bond's value? Why is it necessary to value a bond in terms of today's dollars? W

### Concepts and measurements of GDP, the business cycle

Please assess the concepts and measurements of GDP, the business cycle, unemployment, inflation, and interest rates. Provide at least three specific examples. Thanks for the help with this...

### Investors: short-term rates and matured bonds

What should investors do when rates are increasing short-term and matured bonds? When rates are falling, long-term bonds will have capital gains from market price increases, so what would be a defensive strategy? While many investors may devise low risk strategies and strategies to mitigate risks, upheavals can catch even

### Corporate Finance: Six problems about bonds

I. The Sampson Company issued a \$1,000 bond 5 years ago with an initial term of 25 years and a coupon rate of 6%. Today's interest rate is 10%. 1) What is the bond's current value if interest is paid semiannually as it is on most bonds? 2) What is the value of the bond if the bond's interest is paid annually? II. Assume th

### Price of bonds, purchasing power & revised lease payments

1. The yield to maturity for 15 year bonds is as follows for four different bond rating categories. Aaa 9.4%...........................Aa2 10.0% Aa1 9.6%..........................Aa3 10.2% The bonds of Falter Corporation were rated as Aa1 and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determin

### A bond currently sells for \$875. It has a 7-year maturity, an annual coupon of \$75, and a par value of \$1000. What is its yield to Maturity? What is its current yield?

The income of a bond is a major variable in the bond valuation equation. Bond Yields are also widely quoted in business journals as tools to compare various securities on income streams and total return. A bond currently sells for \$875. It has a 7-year maturity, an annual coupon of \$75, and a par value of \$1000. What

### Finance: Cost of loan, net credit position, present value of settlement, debt yield, YTM for bonds, after tax cost of debt, capital structure

1) Talmud Book Company borrows \$16,000 for 30 days at 9% interest. What is the dollar cost of the loan? Dollar cost of loan = Amount Borrowed X interest Rate X Days loan is Outstanding/ Days in the year (360) 2) McGriff Dog Food Company normally takes 20 days to pay for average daily credit purchases of \$9,000. Its

### Stocks and Bonds Current Yields

A new client, Dr. Washington, has demonstrated a particular thirst for knowledge of stocks and bonds and has asked that you put together an example of these investments to illustrate how they work. Calculate the returns on the following investments (include the US\$ and percent) to illustrate how they work. 1. A stock that does

### Bond Valuation

Please see attachment for proper format of problems. P6-25 Bond valuation-Semiannual interest. Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond Par Value Coupon interest rate Year to maturity Required annual return A \$1,000

### Probability and Returns

See attached file for proper format of template. Profitability and Returns. The assignment requires that I consider whether this is a good investment, by comparing it with investing in a bond fund. I will need to graph the opportunity set, calculate the weights, expected returns, variance and standard deviation in the at

### Comprehensive Bond Problem

Please explain how you get answers and don't use PV in Excel. Attached also are PV tables. 2. Bell Company sells \$2,400,000 of 6% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 5% On October 1, 2011, Douglas Company buys back \$72

### Weighted Average Cost of Capital (WACC) for Dragon Breweries

See attached file. Please illustrate all calculations in the yellow table below from the Excel file. Please build the formulas in the Excel sheet. Dragon Breweries (DB) has the following balance sheet: Dragon Breweries (\$ in millions) Fixed assets \$200,000,000 Short-term debt \$20,000,000 Long-term debt \$80

### Time value of money: Calculate the yield to maturity for a bond

A corporate bond with a face value of \$1000 matures in 4 years and had an 8% coupon paid at the end of each year. The current price of the bond is \$932. What is the yield to maturity for this bond?

### Purchasing power increase on junk bond investment

Your financial advisor tells you that you can earn 15% this year on a junk-bond investment. You anticipate that the inflation rate will be 2.8% over the same year. By how much will your purchasing power increase? 11.87% 7.95% 8.46% 1.12% 9.56%

### Yield to Call and Realized Rates of Return

Seven years ago, Goodwynn & Wolf Incorporated sold a 20 year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of \$1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender

### Various Stock and Bond Questions

1. Par value of a stock refers to the: A) Issue price of the stock. B) Value assigned to a share of stock by the corporate charter. C) Market value of the stock on the date of the financial statements. D) Maximum selling price of the stock. E) Dividend value of the stock. 2. Preferred stock on which the right to

### Problem on Bonds

4. On January 1,2009, a company issued and sold a \$400,000, 7%, 10-year bond payable, and received proceeds of \$396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A. Bond Interest Expense

### Valuing Bonds, Interest Rate Risk and Bond Yields

1. Valuing Bonds What is the price of a 10-year, zero coupon bond paying \$1,000 at maturity if the YTM is: a) 5 percent? b) 10 percent? c. 15 percent? 2. Interest Rate Risk The Faulk Corp has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond oustanding. Both bonds have 8 years to maturity,