During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $56,000. What rate of return per year will a purchaser make if the bond coupon rate is 16% per year payable quarterly, and the bond is due 5 years from now?
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- During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $62,000. What rate of return per year will a purchaser make if the bond coupon rate is 14% per year payable monthly, and the bond is due 5 years from now? The rate of return is % per year.Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.A 10-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $900. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. what are the stated and expected yields to maturity of bonds? The bond makes its coupon payments annually. Do not round intermediate calculations. ( Round your answers to 2 decimal places.).
- During the recession in mid-2009, homebuilder KB Home had outstanding 7-year bonds with a yield to maturity of 8.7% and a BB rating. If corresponding risk-free rates were 2.6%, and the market risk premium was 4.8%, estimate the expected return of KB Home's debt using two different methods. How do your results compare? Note: the average loss rate for unsecured debt is about 60%. See annual default rates by debt rating here and average debt betas by rating and maturity here Considering the probability of default, the expected return of the bond is %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Annual Default Rates by Debt Rating A BBB BB Rating: Default Rate: AAA AA Print 2.2% 8.0% B Average 0.0% 0.1% 0.2% 0.5% In Recessions 0.0% 1.0% 3.0% 3.0% Source: "Corporate Defaults and Recovery Rates, 1920-2011," Moody's Global Credit Policy, February 2012. Done CCC 5.5% 16.0% CC-C 12.2% 48.0% 14.1% 79.0% - X 4"Using the expectations theory of the term structure, it is better to invest in one-year bonds, reinvested over two years, than to invest in a two-year bond, if interest rates on one-year bonds are expected to be the same in both years." Is this statement true, false, or uncertain? O A. False: These investments are almost of the same profitability. OB. True: The expected return on one-year bonds, reinvested over two years, is always higher at amount it - it + 1 - OC. Uncertain: The answer depends on whether we can ignore the (12t)² and it-it+1 values.A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is par—because this means that the going market interest rate is less than its coupon rate. Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.6% with semiannual payments of $43, and a par value of $1,000. The price of each bond in the issue is $1,220.00. The bond issue is callable in 5 years at a call price of $1,086.What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations. % What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations. % Assuming…
- Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decrease from 20 to 16 percent. a. What is the bond price at 20 percent? b. What is the bond price at 16 percent? c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)A 10 year bod of a firm in severe financial distress has a coupon rate of 14% and sells for $900. The firm is currently negotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What is (a) the stated and (b) the expected yield to maturity of the bonds? The bond makes its coupon payments annually.Can I get help with the following please... The 20-year Treasury rate is 4.05 percent, and a firm’s credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year bonds. Management determines that since it has plenty of experience, it will not need to hire an investment banker. At present, 20-year BB bonds are selling for 145 basis points above the 20-year Treasury rate, and it is forecast that interest rates will not stay this low for long.What is the cost of borrowing? Borrowing cost rate % What role does timing play in this situation? Time is of (essence or no essence) in this case.
- Bond J has a coupon rate of 4%. Bond K has a coupon rate of 14%. Both bonds have 17 years to maturity, a par value of $1000 and a yield to maturity of 8% , and both make semi annual payments. If interest rates suddenly rise by 2%, what is the percentage price change in these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about interest rate risk of lower coupon bonds? Excel would be good. Thanks.A 10-year bond of a firm in severe financial distress has a coupon rate of 14% and sells for $900. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What is (a) the stated and (b) the expected yield to maturity of the bonds? The bond makes its coupon payments annually.In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2…