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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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E 14-1
Bond valuation
• LO14-2
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1,
2021. Prices were determined by underwriters at different times during the last few weeks.
Company
ВВ Согр.
DD Corp.
Bond Price
Stated Rate
1.
$109 million
11%
2.
$100 million
10%
3. . GG Corp.
$ 91 million
9%
Each of the bond issues matures on December 31, 2040, and pays interest semiannually on June 30 and December 31. For bonds of similar risk and maturity, the market yield at January 1, 2021,
is 10%.
Required:
Other things being equal, which of the bond issues offers the most attractive investment opportunity if it can be purchased at the prices stated? The least attractive? Why?
E 14-2
Determine the price of bonds in various situations
• LO14-2
Determine the price of a $1 million bond issue under each of the following independent assumptions:
Maturity
Interest Pald
Stated Rate
Effective (Market) Rate
1.
10 years
10 years
10 years
annually
semiannually
semiannually
semiannually
semiannually
10%
10%
12%
12%
2.
3.
12%
10%
4.
20 years
20 years
12%
12%
10%
5.
12%"
Transcribed Image Text:Exercises
connect
E 14-1
Bond valuation
• LO14-2
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1,
2021. Prices were determined by underwriters at different times during the last few weeks.
Company
ВВ Согр.
DD Corp.
Bond Price
Stated Rate
1.
$109 million
11%
2.
$100 million
10%
3. . GG Corp.
$ 91 million
9%
Each of the bond issues matures on December 31, 2040, and pays interest semiannually on June 30 and December 31. For bonds of similar risk and maturity, the market yield at January 1, 2021,
is 10%.
Required:
Other things being equal, which of the bond issues offers the most attractive investment opportunity if it can be purchased at the prices stated? The least attractive? Why?
E 14-2
Determine the price of bonds in various situations
• LO14-2
Determine the price of a $1 million bond issue under each of the following independent assumptions:
Maturity
Interest Pald
Stated Rate
Effective (Market) Rate
1.
10 years
10 years
10 years
annually
semiannually
semiannually
semiannually
semiannually
10%
10%
12%
12%
2.
3.
12%
10%
4.
20 years
20 years
12%
12%
10%
5.
12%
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