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Bond Valuation

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,

Show calculations for default risk premium on a corporate bond

If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Current Market Value of a Firm's Debt

Corporation's balance sheet as of January 1, 2006 is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000

Yield, Price, Callable, Risk, Discount, Value and Interest

Series of 5 multiple choice questions requiring use of financial calculator or Excel spreadsheet. 1. Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at

Bonds and their valuation (Singleton Company)

Six years ago the Singleton Company issued 20-year bonds with a 14% annual coupon rate at their $1000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held the

Investments: Estimating the Price of a Bond

An investor has 2 bonds in his portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. A. What will the value of each bond be if the going interest rate is 5%, 8%, 12%? Assume that only one more interest payment is to be made on Bond S at its maturi

Planning & Forecasting: PV of Bond YTM, After-Tax Cash Flow

1. What is the present value of $800 to be received at the end of eight years, assuming the following annual interest rate? a. 4 percent, discounted annually b. 8 percent, discounted annually c. 20 percent, discounted quarterly d. 0 percent 2. What would you be willing to pay for a $1,000 bond paying $70 interest at the

Stock Price and Yield to Maturity on Bond

A ten-year bond pays 11% interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity? (Show all work/calculations/formulas). An issue of common stock has just paid a dividend of $3.75. Its growth rate is 8%. What is its price if the market's rate of return is 16%? (Show

Problems in issuing 20-year bonds to pay employee salaries

Please help answer the following question. What are the problems caused by issuing 20-year bonds and using the proceeds to pay employees' salaries? Discuss the reason why long-term proceeds to pay employees' salaries is a bad idea.

Intermediate accounting - TOL Company - Securities reporting

Consider each of the following investments of the TOL Company in other companies: A. An investment in the preferred stock of a financial services company. The company is sound financially and the TOL Company invested for the dividend income. TOL Company has no plans to sell the stock anytime in the foreseeable future. B.

Is Dallas Instruments in compliance with bond covenants?

Dallas Instruments has a large bond issue whose covenants require: (1) that DI's interest coverage ratio exceeds 4.0; (2) that DI's ratio of tangible assets to longterm debt exceeds 1.50; and (3) that cumulative dividends and share repurchases not exceed 60% of cumulative earnings since the date of the issuance of the bo

Issue price for Zeros, amortized interest deduction Tesla

Telsa Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon vonds to raise the money. The required return on the bonds will be 9 percent. A. What will these bonds sell for at issuance? b. Using IRA amortization rul, what interest deduction can the company take on the

YTM & Yield to Call

A 10year 12% semiannual coupon bond with a par value of $1000 may be called with a call premium of $60. The bond is currently selling for $1100. What is the bonds' yield to maturity? What is the bonds' yield to call?

What is the bond price for Renfro Rentals?

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

Using Present Value Analysis Estimates

1. Using present value analysis estimate the number of zero coupon bonds(each with a face value of $1000) that will have to be offered to provide the $1 million Laurinburg Precision Engineering needs for expansion, if investors seek a yield of 10%. Assume interest will compound on a semiannual basis over the life of the five yea

Statistics and International Finance

Statistics 1. The general form of the multiple regression equation is the following: y = a + b1x1 + b2x2 + b3x3 + ..... + bnxn "a" is the intercept value defined as the value of y (dependent variable) if all independent variables are equal to zero "b1" is the sensitivity of y to variable x1. If x1 is varied by 1 unit, y

Yield to Maturity

Using a Spreadsheet to Calculate Yield to Maturity. What is the yield to maturity on the following bonds; all have a maturity of 10 years, a face value of $1,000, and a coupon rate of 9 percent (paid semi-annually). The bonds' current market values are $945.50, $987.50, $1,090.00, and $1,225.875, respectively. Market Value To

Corporate Finance: Value of the Stock

See the attached file. 7.11- Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work which leads you to expect that its earnings an

Tax law for real estate: Property held or used, vacation home rules

Admit it. You've watched that late-night infomercial describing how you can become a multimillionaire virtually overnight by leveraging your good looks and sparkling personality (and little else...) to invest in real estate. All joking aside, investing in real estate does present some opportunity for the creation of wealth, much

Zero-Coupon Bond Prices

A 2-year $1,000 par zero-coupon bond is currently priced at $819.00. A 2-year $1,000 annuity is currently priced at $1,712.52. Assume: a. the pure expectations theory of interest rates holds, b. neither bond has any default risk, maturity premium, or liquidity premium, and c. you can purchase partial bonds. If you want to invest

business finance current prices

i) Find the current price of 30 day commercial paper issued with a yield of 1.25% and with face value of $100,000. ii) Danny purchases a newly issued 4 year bond priced at $1015 with par value of $1000. It pays $100 interest yearly. What is the coupon rate, the current yield and the yield to maturity? iii) Danny also p

Bonds: Value, YTM, YTC, PV, market price, current yield, capital gain yield

Please calculate the attached problems and show all work: 1. Bond PV 1a A coupon bond promises annual interest payments based on a face value of $1,000 and a 9.00% coupon rate. The bond matures in 22 years. If the appropriate discount rate is 7.85%, what is the value of the bond? 2. Bond YTM 1a A coupon bond with annual

Market Size of the NYSE and Bond Market

Which market is bigger in terms of dollars of securities transacted annually: the NYSE or the bond market? How did you find your answer? Please share your source and your reaction. Did you expect the answer you found?