Purchase Solution

Finance: Bond valuation.

Not what you're looking for?

Ask Custom Question

1. Assumed that the Financial Management Corporation's $1,000 par-value bond had a 5.700% coupon, matured on May 15, 2020, had a current price quote of 97.708, and had a yield to maturity of 6.034%. Given this information, answer the following questions:

A. What was the dollar price of the bond?

B. What is the bonds current yield?

C. Is the bond selling at par, at a discount, or at a premium?

D. Compare the bonds current yield calculated in part B to its YTM and explain why they differ.

2. Complex Systems has an outstanding issue of $1,000 par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.

A. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?

B. Describe two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.

C. If the required rate of return were at 12% instead of 10%, what would the current value of Complex Systems bond be? Contrast this finding with you findings in part A.

3. The Salem Company bond currently sells for $955, has a 12% coupon interest rate and a $1,000 par-value, pays interest annually, and has 15 years to maturity.

A. Calculate the yield to maturity (YTM) on this bond.

B. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond.

Attachments
Purchase this Solution
Solution Summary

The problem set deals with issues under bond valuation: determining the current yield, market price, yield to maturity etc.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
Recent Feedback
  • "Thank you."
  • "thank you Chidi Ngene.. if you have any APA references would be great"
  • "Thank you so much for your help, your explanations were easy to understand and apply!"
  • "are you able to highlight the equations used either on the xlsx or a word doc as to how each graph was formed- overall looks fine i just need help understanding this myself"
  • "Chidi Ngene, M. Sc. Was extremely helpful as without the help and guidance I would have failed, but with the help I passed. I still have a lot to learn and in need of the guidance to understand and learn more on the subject. I would recommend Chidi Ngene and BrainMass to anyone that are in need of help. Thank you!!"
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • Bonds Valuation and Future Cash Flows

    599228 Bonds Valuation and Future Cash Flows Please give one real life example of bond or stock valuation and explain the concepts. Cite and list all references. Bonds valuation What is bonds valuation?

  • Finance: Bond valuation.

    404194 Finance: Bond valuation... Bond Valuation a. Calculate the Yield-to-Maturity on a 8 year, 9 percent semi-annual coupon, $1,000 par value bond that sells for $921.11 What is the YTM if that bond now sells for $1,157.67? b.

  • Ratio calculation / bond valuation

    Question 6: (Bond valuation) 10 points According to the Yahoo Finance Bond Center, dealers are currently offering the US government's 8.5% 2020 Treasury Bond for "142.12." Answer the following questions about the bond: a.

  • Finance: GE bond valuation, return on Sony stock, Mill Due share price, Owego CAPM

    290808 Finance: GE bond valuation, return on Sony stock, Mill Due share price, Owego CAPM 1. (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years.

  • Bond and Stock Valuations

    291432 Finance A summary that indicates how the concepts and principles from the text problem sets for bond valuation, stock valuation, required return for a preferred stock and CAPM apply to health care finance The finance concepts listed can be used

  • Finance: Bond Valuation

    272607 Finance: Bond Valuation An investor has two 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.

  • Corporate Bonds vs Preferred Stocks

    How does a corporate bond compare with preferred stock? How does the valuation of a corporate bond compare with the valuation of preferred stock? 1.

  • Valuation of Bonds Different Methods

    Credit risk valuation: methods, models, and applications. UK: Springer Science & Business Media. Eberlein, E. (2014). Fourier-based valuation methods in mathematical finance. In Quantitative energy finance, 85-114.

  • Finance questions

    The solution explains various finance questions relating to bond valuation, cost of equity and weighted average cost of capital

  • Managerial Finance

    And what is the impact of an increase in the prevailing interest rate on the valuation of a bond? Hi there,

    A bond rating has a significant impact on value.

View More Related Solutions