Bonds purchased for $9,000 have a face value of $10,000 and interest is 10% per year, payable semiannually. The bonds will mature in 3 years and the issuing company is anticipating liquidity problems within 3 years and has told holders that if they hold their bonds 2 years beyond the original maturity date, the interest on the bond for the additional period of 2 years will be 16% annually, payable semiannually. What annual nominal incremental rate of return would holders achieve if they accept the proposal?

Bonds purchased for $9,000 have a face value of $10,000 and interest is 10% per year, payable semiannually. The bonds will mature in 3 years and the issuing company is anticipating liquidity problems within 3 years and has told holders that if they hold their bonds 2 years beyond the original maturity date, the interest on the bond for the additional period of 2 years will be 16% annually, payable semiannually. What annual nominal incremental rate of return would holders achieve if they accept the proposal?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 10P

See similar textbooks

Similar questions

You will receive $60 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and it has a face value of $2,000. This means that if you hold the bond until its maturity, you will continue to receive $150 interest semiannually and $2,000 face value at the end of five years.(a) What is the present value of the bond in the absence of inflation if the market interest rate is 9% '?(b) What would happen to the value of the bond if the inflation rate over thenext five years is expected to be 4%?
A $1,000 face value bond issued by the Purdue Company currently pays total annual interest of $80 per year and has a 15-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 bond? b. How would your answer change is the bond makes semi-annual payments? c-How would your answer in (a) change if, one year from now, investors only required a 6 percent annual rate of return on bond investments similar in quality to the Purdue bond? d-Suppose the original bond can be purchased for $925. What is the bond’s yield to maturity?
One hundred $1,000 bonds having bond rates of 8% per year payable annually are available for purchase. If you purchase them and keep them until they mature in 4 years, what is the maximum amount you should pay for the bonds if you wish to earn no less than a 7% effective annual return on yourinvestment?
What is the present worth of a $25,000 bond that was purchased for $23,750 and has an interest of 10% per year, payable semiannually? The bond matures in 15 years. The interest rate in the marketplace is 8% per year, compounded quarterly.
You will receive a $60 interest every six months from your investment in a corporate bond. The bond will mature five years from now and it has a face value of $2,000. l11is means that if you hold the bond until its maturity, you will continue to receive $150 interest semiannually and $2,000 face value at the end of five years.(a) What is the present value of the bond in the absence of inflation if the market interest rate is 9% '?(b) What would happen 10 the value of the bond if the inflation rate over the next five years is expected to be 4%?
A 20-year bond with a face value of P 5,000 is offered for sale at P 3,800. The nominal rate of interest on the bond is 7%, paid semi-annually. This bond is now 8 years old (i.e., the owner has received 16 semiannual interest payments). If the bond is purchased for P 3,800, What effective annual rate of interest would be realized on this investment opportunity?
A simple "EE US Treasury Savings Bond" pays the holder $1000 in 30 years. Given that the applicable interest rate on the bond is 2.5% APR compounded monthly, how much does the bond cost today? (The purchase date is always time t=0 for each transaction).
A borrower and lender negotiate a $25,000,000 interest-only loan at an 8.0% interest rate for a term of 15 years. There is a 10 year lockout period. Should the borrower choose to prepay this loan at any time after the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 180 basis points (1.80%) will be added to determine the lender’s reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender’s reinvestment rate. If the loan is repaid at the end of the 12th year, and 3-year treasury rates are 5.0%, what is the YMF? $797,795 $341,336 $547,229 $633,272
You wish to purchase a $1,000 bond from a friend who needs the money. There are 7 years remaining until the bond matures, and interest payments are quarterly. You decide to offer $750.08 for the bond because you want to earn exactly 16% per year compounded quarterly on the investment. What is the annual bond rate of interest?
A corporate bond has a face value of $10,000, a bond interest rate of 8% per year payable semiannually, and a maturity date of 20 years from now.If a person purchases the bond for $9000 when the interest rate in the market place is 8% per year compounded semiannually, the size and frequency of the interest payments the person will receive are:a. $270 every six monthsb. $300 every six monthsc. $360 every six monthsd. $400 every six months
Please do both correctly, I'll rate the answer Question: (i) A $10,000 bond is purchased for $9600 and has a bond rate of 6% per year payable semiannually for 2 years. What is the interest rate? (ii) You borrow 35,000 for 10 years at 10% per year compounded monthly. After making 24 payments you decide to pay the loan off. What's that payoff amount?
The company issues 10.0%, 10-year bonds with a total face amount of $1,000,000. The market interest rate for bonds of similar risk and maturity is 9.8%. Interest is paid semi-annually. DO NOT ROUND YOUR ANSWERS UNTIL YOU FULLY COMPLETE THE PROBLEM SET. 1. $ 2. $ 3. $ How much will be paid in interest each interest payment? (rounded to nearest dollar). What is the present value of the interest payments? (rounded to nearest dollar). What is the issue price of the bond?