Question

# 1(Bond valuation) Calculate the value of a bond that matures in 19 years and has a $ 1 comma 000 par

value. The annual coupon interest rate is 11 percent and the market’s required yield to maturity on a comparable-risk bond is 9 percent.

2 Bond valuation) A bond that matures in 10 years has a $1 comma 000 par value. The annual coupon interest rate is 7 percent and the market’s required yield to maturity on a comparable-risk bond is 12 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?

3 (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in 16 years with an annual coupon rate of 9 percent. Their par value will be $1 comma 000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 11 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 12 percent. What will be the price of these bonds if they receive either an A or a AA rating?

4 (Yield to maturity) The market price is $1 comma 050 for a 12-year bond ($1 comma 000 par value) that pays 11 percent annual interest, but makes interest payments on a semiannual basis (5.5 percent semiannually). What is the bond’s yield to maturity?

5 Doisneau 18-year bonds have an annual coupon interest of 12 percent, make interest payments on a semiannual basis, and have a $1 comma 000 par value. If the bonds are trading with a market’s required yield to maturity of 13 percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds?

6 (Bond valuation) Fingen’s 14-year, $1 comma 000 par value bonds pay 15 percent interest annually. The market price of the bonds is $950 and the market’s required yield to maturity on a comparable-risk bond is 17 percent.

a. Compute the bond’s yield to maturity.

b. Determine the value of the bond to you, given your required rate of return.

c. Should you purchase the bond?

7 (Yield to maturity) Abner Corporation’s bonds mature in 17 years and pay 7 percent interest annually. If you purchase the bonds for $750, what is your yield to maturity?

8 (Bond valuation) The 15-year $1 comma 000 par bonds of Vail Inc. pay 12 percent interest. The market’s required yield to maturity on a comparable-risk bond is 15 percent. The current market price for the bond is $ 910.

a. Determine the yield to maturity.

b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond?

c. Should you purchase the bond at the current market price?

Finance