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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.