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# Bond Valuation

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### Calculating YTM and price of a bond

The Pennington Corporation issued a new series of bonds on January 1, 1987. The bonds were sold at par (\$1,000), had a 12% coupon, and matured in 30 years on December 31, 2016. Coupon payments are made semiannually. (on June 30 and December 31) a. What was the YTM on the date the bonds were issued? b. What was the price of

### 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

### Steps to Estimating the Fair Value of a Bond

Find the value of a semiannual coupon bond with a face value of \$1000, with an annual coupon rate of 15 percent, and with 24 years remaining until maturity, and with an annual interest rate (Yield to Maturity) of 17.48 percent. Of the options below, which one is correct?

### 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

### corporate bond portfolio

You earned 9% percent on your corporate bond portfolio this year and you are in a 18 percent federal tax bracket. If over your holding period, inflation was 4 percent, your real after-tax rate of return was?

### 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

### Coupon Rates, Coupon Yields and Maturity

A firm issues a bond at par value. Shortly thereafter, interest rates fall. If you calculated the coupon rate, coupon yield, and yield to maturity for this bond after the decline in interest rates, which of the three values would be highest and which would be lowest? Explain.

### Concepts behind bond values and reasons to issue bonds

What are the concepts behind bond values? What are some potential reasons behind issuing bonds?

### 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

### Par Value Bond

A firm issues a bond at par value. Shortly thereafter, interest rates fall. If you calculated the coupon rate, coupon yield, and yield to maturity for this bond after the decline in interest rates, which of the three value would be highest and which would be lowest? Explain.

### 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

### Process Followed by Bond Price

Suppose that x is the yield on a perpetual government bond that pays interest at the rate of 1\$ per annum. Assume that x is expressed with continuous compounding, that interest is paid continuously on the bond, and that x follows the process: dx = a(x(0) - x) dt + sx dz Where a, x(0), and s are positive constants, and dz i

### 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

### The Interest Rate of a Bond

A zero-coupon bond that will pay \$1,000 in 12 years is selling today for \$318.63. Calculate the bonds offered interest rate. (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Interest rate __________ %

### Computing After-tax Equivalent Yield

If a corporate bond paid 9 percent interest, and you are in the 28 percent income tax bracket, what rate would you have to earn on a general obligation municipal bond of equivalent risk and maturity in order to be equally well off? Given that municipal bonds are often not easily marketable, would you want to earn a higher or low

### 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

### Sure Tea Co: What is the remaining maturity of these bonds?

Sure Tea Co. has issued 6.3% annual coupon bonds that are now selling at a yield to maturity of 9.2% and current yield of 8.7770%. What is the remaining maturity of these bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Remaining period = years

### Computing the Current Yield of a Publicly-Traded Bond

Maturity Coupon Bid Price Asked Price Asked Yield, % 2012 May 15 1.375 101:05 101:06 0.78 2013 May 15 3.625 106:31 107:01 1.23 2014 May 15 4.75 111:22 111:23 1.70 2020 May 15 8.75 144:17 144:19 3.44 2025 Aug 15 6.875

### 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

### What is the current yield and the 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

### A 5-year Circular File bond pays interest of \$60 annually and sells for \$988. What are its coupon rate and yield to maturity?

A 5-year Circular File bond pays interest of \$60 annually and sells for \$988. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Round "Coupon rate" to 1 decimal place and "Yield to maturity" to 2 decimal places.) What is Coupon rate % What is Yield to maturity %

### Computing the Coupon Rate and Yield to Maturity

A 5-year Circular File bond pays interest of \$60 annually and sells for \$988. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Round "Coupon rate" to 1 decimal place and "Yield to maturity" to 2 decimal places.) Coupon rate % Yield to maturity %.