A Multi-national Corporation sold an issue of bonds in the Pakistani bondsmarket. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, thegoing rate of interest on bondssuch as these fell to6% per annum. At what price would the bonds sell inthe market? 2) Suppose that, two yearsafter the initial offering, the going interest ratehad risen to 12%. At what price would the bonds sell?3) Comment on your resultsNote: In both cases you need to calculate market price/bond.

A Multi-national Corporation sold an issue of bonds in the Pakistani bondsmarket. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, thegoing rate of interest on bondssuch as these fell to6% per annum. At what price would the bonds sell inthe market? 2) Suppose that, two yearsafter the initial offering, the going interest ratehad risen to 12%. At what price would the bonds sell?3) Comment on your resultsNote: In both cases you need to calculate market price/bond.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

A Multi-national Corporation sold an issue of bonds in the Pakistani bondsmarket. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6% per annum. At what price would the bonds sell in the market? 2) Suppose that, two years after the initial offering, the going interest ratehad risen to 12%. At what price would the bonds sell?3) Comment on your results in Part-1 and Part-2.
A Multi-national Corporation sold an issue of bonds in the Pakistani bonds market. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, thegoing rate of interest on bonds such as these fell to 6% per annum. At what price would the bonds sell in the market?
Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%
A $1,000 face value bond issued by the Purud Company currently pays total annual interest of $80 per year and has a 13-year life. a-What is the present value, or worth, of this bond if investors are willing to accept a 10 percent annual rate of return on bonds of similar quality if the bond is a Eurobond? b-How would your answer in (a) change if the bond is a U.S. bond? c-How would your answer in (b) change if, one year from now, investors only required a 6 percent annual rate of return on bond investments similar in quality to the Purud bond? d-Suppose the original bond can be purchased for $925. What is the bond's yield to maturity?
You issued debt in the form of bonds, with a face value of $1,000, and have 12 years until maturity. The bonds have an annual coupon rate of 8.4%, which are paid semiannually. a. The current price is $1,115. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.) b. The tax rate is 25%. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.) a. Pretax cost of debt b. Aftertax cost fo debt % %
Atom Endeavour Co. Issued $27 million face amount of 5.6% bonds when market Interest rates were 6.24% for bonds of similar risk and other characteristics. Required: a. How much Interest will be paid annually on these bonds? (Enter your answer in dollars, not millions of dollars, 1.e. 1,234,567.) Annual interest payment b. Were the bonds issued at a premium or discount? O Premium O Discount c. Will the annual Interest expense on these bonds be more than, equal to, or less than the amount of Interest paid each year? O Interest expense will be less than the Interest paid. O Interest expense will be more than the Interest paid. O Interest expense will be equal to the Interest paid.
You issued debt in the form of bonds, with a face value of $1,000, and have 9 years until maturity. The bonds have an annual coupon rate of 7.8%, which are paid semiannually. a. The current price is $1,100. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g 12.34.) b. The tax rate is 22%. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.)
Reynolds Co. Issued $54 million face amount of 5.25% bonds when market interest rates were 4.97% for bonds of similar risk and other characteristics. Required: a. How much Interest will be paid annually on these bonds? (Enter your answer in dollars, not millions of dollars.) b. Were the bonds issued at a premium or discount? c. Will the annual Interest expense on these bonds be more than, equal to, or less than the amount of Interest paid each year? a. Annual interest payment b. Bonds issued C. Annual interest expense will be
Atom Endeavour Co. issued $48 million face amount of 12.0% bonds when market interest rates were 13.38% for bonds of similar risk and other characteristics. Required: a. How much interest will be paid annually on these bonds? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Annual interest payment b. Were the bonds issued at a premium or discount? O Premium O Discount c. Will the annual interest expense on these bonds be more than, equal to, or less than the amount of interest paid each year? O Interest expense will be less than the interest paid. O Interest expense will be more than the interest paid. O Interest expense will be equal to the interest paid.
A firm issues 2-year bonds with a coupon rate of 4.9%, paid semiannually. The credit spread for this firm's 2-year debt is 1.2%. New 2-year Treasury notes are being issued at par with a coupon rate of 5.2%. What should the price of the firm's outstanding 2-year bonds be if their face value is $1000? A. $4.80 B. $972.25 C. $777.80 D.
A bank has issued a six-month, $1.0 million negotiable CD with a 0.53 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $1 million CD falls to $998,900. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $1.0 million face value CD. Required A: Bond Equivalent Yield ___ EAR____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 3 decimal places.) Required B: CD Holder will receive at maturity_____(Do not round intermediate calculations. Round your answer to nearest whole number.) Required C: Bond Equivalent Yield____ Secondary Market Quoted Yield______ EAR_____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 4 decimal places.
Even though most corporate bonds in Canada and the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 18 years to maturity, and a coupon rate of 7.3 percent paid annually. If the yield to maturity is 6.15 percent, what is the current price of the bond? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit € sign in your response.) Current price of the bond