A bond has a face value of $2000, a coupon rate of 6% and matures in 10 years’ time. If its current yield to maturity is 8% what is the current price of the bond? If the yield falls to 4% determine the bond price. What do these results indicate about the relationship between the price of a bond and its yield to maturity? B. You are asked to put a value on a bond which promises eight annual coupon payments of £70 and will repay its face value of £1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9 per cent. How much is this bond worth? You are offered the bond for a price of £1030.44. What yield to maturity does this represent? C. Explain in detail the trade-off model of capital structure. In light of the current global financial challenge, discuss which elements of the model are expected to become most prevalent?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A. A bond has a face value of $2000, a coupon rate of 6% and matures in 10
years’ time. If its current yield to maturity is 8% what is the current price of
the bond? If the yield falls to 4% determine the bond price. What do these
results indicate about the relationship between the price of a bond and its
yield to maturity?


B. You are asked to put a value on a bond which promises eight annual coupon
payments of £70 and will repay its face value of £1000 at the end of eight
years. You observe that other similar bonds have yields to maturity of 9 per
cent. How much is this bond worth? You are offered the bond for a price
of £1030.44. What yield to maturity does this represent?


C. Explain in detail the trade-off model of capital structure. In light of the current
global financial challenge, discuss which elements of the model are
expected to become most prevalent? 

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