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Valuation of Corporate Zero-Coupon Bonds

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1.Valuation - corporate bond
A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%. What is the current selling price for a) and b)?

2.Valuation - options
The following information refers to a six-month call option on the stock of XYZ, Inc.
•Price of the underlying stock: $50.
•Strike price of the three-month call: $45.
•Market price of the option: $10.

a) What is the intrinsic value of the option?
b) What is the option's time premium at this price?

3.Valuation - zero-coupon bond
A U.S. Government bond with a face amount of $10,000 with 13 years to maturity is yielding 5.5%. What is the current selling price?

4.A share of stock is currently selling for $31.80. If the anticipated constant growth rate for dividends is 6% and investors are seeking a 16% return, what is the dividend just paid?

5.A $1000 value convertible bond with conversion price of $50. It sells for $1,120 despite the fact bond's coupon ate and the market rate are equal. The common stock acquired upon conversion is selling for $54 per share. What is the convertible bond's conversion premium?

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Solution Summary

The valuation of corporate zero-coupon bonds are provided. Strike price of the three-month calls are given.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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