Explore BrainMass

Explore BrainMass

    Finance: Bond valuation.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com June 4, 2020, 1:27 am ad1c9bdddf


    Solution Summary

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