HomeworkLib
Question

QUESTION 51 The following information applies to the next 4 questions. A major chemical manufacturer has experienced a market reevaluation lately due to a number of lawsuits. The firm has a bond issue outstanding with 20 years to maturity and a coupon rate of 7% (paid annually). The required rate has now risen to 10%. The par value of the bond is $1,000. What is the current value of these securities? O 727.88 O 744.59 O 794.28 818.10 881.68
What is the current yield of this bond? 8.12% 8.22% , o 8.35% o 8.55% o 9.40%
what would be the selling price of the same 7% coupon bond one year later, if the market interest rate remains at 10%? 735.23 749.05 805.67 O823.56 898.42
If the 7% coupon bond with time to maturity of 20 years is selling for $901.82, what is the yield to maturity of the bond? 6.5% 8.0% 9.0% 9.5% 10.0%
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Bond price is the present value of future cash flows of the bond. Current yield is annual coupon dividend by current price of bond. A1 Par value (F) Interest rate (Coupon rate) Market demanded return (Yield to maturity) Time to maturi $1,000 7.00% 10.00% 20 Years Interest is paid once a year i.e. annual Annual coupon (C) Annual Period (n YTM (i) Current Value of the bond can be calculated by finding the present value of cash flows of bonds. Cash Flow of Bonds can be written as follows: Period Cash Flow of Bonds 10 $70.00 12 10.00% 14 15 16 17 18 19 4 $70.00 $70.00 $70.00 $70.00 $70.00 $1,070.00 Current Value of Bond Where, C is coupon, F is par value of bond, i is market rate and n is total number of periods 21 Current Value of Bond =C*( P/A, i, n)+FYP/F,i,n) 744.59 D10 PV(D12,D11,-1,0)+D4 (1/((1+D12)AD11)) Hence current market value of bond is $744.59 24 25 26 27 Thus the second option is correct Annual coupon/Current Value of bond $70/744.59 Current Yield 29 9.40% -D10/D24 31 Hence the current Yield is 9.40% 32 Thus the fifth option is correct. 35 36 37 B Par value (F) Interest rate (Coupon rate) Market demanded return (Yield to maturity) Time to maturity $1,000 7.00% 10.00% 19 Year Interest is paid once a year i.e. annual Annual coupon (C) Annual Period (n YTM (i Current Value of the bond can be calculated by finding the present value of cash flows of bonds. Cash Flow of Bonds can be written as follows: Period Cash Flow of Bonds 39 $70.00 19 10.00% 41 19 $70.00 $70.00 $70.00 $70.00 $70.00 $1,070.00 47 Current Value of Bond Where, C is coupon, F is par value of bond, i is market rate and n is total number of periods. 49 Current Value of Bond 51 52 53 749.05 -D10 PV(D12,D11,-1,0)+D4 (1/((1+D12)D11)) Hence current market value of bond is 749.05 Thus the second option is correct

Yield to maturity is the discount rate at which NPV of cash flows of investor is zero. calculation of yield to maturity of the bond:A1 57 $1,000 7.00% $902 Face value Coupon rate Current Price Years to Maturi Annual Coupon Cash flow to investor will be as follows: Year Cash flow 59 61 20 years $70.00D58*D59 63 2 4 ($902)$70$70 $70 $70 S $70$1,070 Yield to maturity is the rate at which if future NPV to Investor will be zero Rate(nper,pmt,PV, [fvl,type) function of excel can be used to find the yield to maturity as follows: NPER PMT PV 71 72 73 74. 75 76 ($901.82 $1,000 Yield to maturity 8.00%-RATE(D70,D71,D72,D73) Thus yield to maturity is Hence the second option is correct 8.00%

0 0
Add a comment
Know the answer?
Add Answer to:
QUESTION 51 The following information applies to the next 4 questions. A major chemical manufacturer has...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Question 15 RJR Nabisco recently experienced a market reevaluation due to a number of tobacco lawsuits....

    Question 15 RJR Nabisco recently experienced a market reevaluation due to a number of tobacco lawsuits. The firm has a bond outstanding with 15 years to maturity, and a coupon rate of 8 percent, with interest being paid semiannually. The required yield to maturity has risen to 16%. What is the price of the RJR Nabisco bond? $1,000 $804 $767 $550 OOOO

  • \ please show work in written form (not excel) thank you. Due to a number of...

    \ please show work in written form (not excel) thank you. Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest being paid semiannually. The required simple rate on this debt has now risen to 16 percent. What is the current value of this bond? $1,273 | $1,000 |...

  • 2. A coupon bond pays annual int coupon rate of 10%, and has a yield to...

    2. A coupon bond pays annual int coupon rate of 10%, and has a yield to maturity of annual interest, has a par value of $1.000, matures in 4 years, has a ed to maturity of 12%. The current yield on this bond is a. 10.52% b. 10.45% c. 10.95% d. 10.65% e. none of the above 3. A coupon bond that pays interest annually is selling op and has a coupon rate of 9%. The yield to maturity on...

  • Problem 7-19 (similar to) Question Help (Expected rate of return and current yield) Time Warner has...

    Problem 7-19 (similar to) Question Help (Expected rate of return and current yield) Time Warner has bonds that are selling for $654. The coupon Interest rate on the bonds is 9.40 percent and they mature in 19 years. What is the yield to maturity on the bonds? What is the current yield?

  • Question 7 2 pts Highland Corp., a U.S. company, has a 7 year bond whose yield to maturity is 4 percent. The bond has n...

    Question 7 2 pts Highland Corp., a U.S. company, has a 7 year bond whose yield to maturity is 4 percent. The bond has no coupon payments but assume semi annual compounding. What is the price of this zero coupon bond? Round the answer to 2 decimal places. Question 8 2 pts Marshall Company is issuing four-year bonds with a coupon rate of 4.5 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.5 percent,...

  • 4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond...

    4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond was sold at par (i.e., at a price of $1,000) three years ago, when the YTM on similar bonds was 8.0%. If there are 12 years until maturity, what would be the YTM to an investor who buys the bond today? (Hint: If the bond's price was $1,000 three years ago, when the market interest rate was 8.0%, what must be the coupon rate?...

  • a corporate bond has 15 years left to maturity. it offers a coupon rate of 9.5%...

    a corporate bond has 15 years left to maturity. it offers a coupon rate of 9.5% (paid semiannuall) on a $1000 par value. if it is currently selling in the market for $1140, what is its yield to maturity? 9.18% 8.23% 7.89% 6.84%

  • 1). Merton enterprises has bonds on the market making annual payments, with 13 years to maturity,...

    1). Merton enterprises has bonds on the market making annual payments, with 13 years to maturity, $1,000 par value, and selling for $825. At this price, the bonds yield 7 percent. what must the coupon rate be on Merton's bonds? 2). Bonds of Zello Corporation with a par value of $1,000 sell for $1,080, mature in 18 years, and have a 7% annual coupon rate paid annually, what is the yield to maturity? what is the current yield? what is...

  • You paid $957,3 for a 5% 5-year bond, which has a face value of $1000 and...

    You paid $957,3 for a 5% 5-year bond, which has a face value of $1000 and pays coupons twice each year. What is the yield-to-maturity? Choose the closest answer A 2% B 3% C 4% D 5% E 6% A bond matured in 15 years has a current yield of 8.35%. The face value is $1000 while the selling price is $1197.93. What is its coupon rate if it pays semi-annual coupon payments? A 4.18% B 5.00% C 8.35% D...

  • A bond with a par value of $1,000 and an annual coupon rate of 9.5% has...

    A bond with a par value of $1,000 and an annual coupon rate of 9.5% has a yield to maturity of 6.4%. If the bond has 11 years to maturity, what is its current yield?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT