KIC Inc. plans to issue $7.2 million of bonds with a coupon rate of 16 percent paid semiannually and 36 years to maturity. The currentone-year market interest rate on these bonds is 15 percent. In one year, the interest rate on the bonds will be either 18 percent or 9percent with equal probability. Assume investors are risk neutral.a. If the bonds are non-callable, what is the price of the bonds today? (Do not round Intermediate calculations. Enter the answer indollars. Round the final answer to 2 decimal places. Omit $ sign in your response.)Price of the bonds $ $3,799,246.63b. If the bonds are callable one year from today at $1,575, will their price be greater or less than the price you computed in part (a)?Greater thanLess thanc. If the bonds are callable one year from today at $1,575, what is the current price of the bond? (Do not round Intermediatecalculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.)Current price of the bondd. What is the value of the call provision to the company? (Do not round Intermediate calculations. Enter the answer in dollars.Round the final answer to 2 decimal places. Omit $ sign in your response.)Call value$

Price of a bond is the present value of coupon payments plus present value of the par value of the…

Answered: KIC Inc. plans to issue $7.2 million of…

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

Problem 1PS

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KIC Inc. plans to issue $5.0 million of bonds with a coupon rate of 10 percent paid semiannually and 30 years to maturity. The current one-year market interest rate on these bonds is 9 percent. In one year, the interest rate on the bonds will be either 12 percent or 6 percent with equal probability. Assume investors are risk neutral. If the bonds are non-callable, what is the price of the bonds today?
Microsoft plans to issue $10 million of bonds with a coupon rate of 8 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 10 percent. In three year, the interest rate on the bonds will be either 12 percent, 10 percent or 8 percent with equal probability. If the bonds are noncallable, what is the price of the bonds today? (Assume investors are risk-neutral)
Phil Manufacturing, Inc. bonds have a face value of $1,000, a coupon rate of 6.5 percent, semiannual interest payments, and mature in 19 years. What is the current price of these bonds if the yield to maturity is 6.65 percent? Can the calculator and excel solution be provided?
Buner Corp’s outstanding bonds, which has a face value of $1,000, have 6 years remaining to maturity. The bond’s coupon rate of interest is 8%, and interest is paid semiannually. If investors require a rate of return equal to 6% to invest in similar risk bonds, what should be the market price of Buner’s bond?
Mertol Corporation has 7-year, 1000t par value bonds that make semiannual coupon payments. The current yield-to-maturity on the bonds 22,45% and the bond currently sells for 673,99t. a. What is the annual coupon rate on the bond? b. What is the current yield of the bond? What is the expected capital gains yield tor the next year? c. What is the effective YTM an investor will earn on Mertol bonds?
A corporate bond is currently quoted at a price of $1197.93 and carries a 10 percent annual coupon rate. The bond’s face value is $1000, and pays coupon semiannually. What is the current yield of the bond? Suppose the bond price in one year is $1193.68, assuming no change in yield-to-maturity, what is the capital gain yield? What is the yield-to-maturity for this bond?
Do not copy from other source Assume that the Blackmores Group would like to replace its bank loan facilities (2019) with a new issuing of bonds. Assume that the issue will have a coupon rate of 1.5% with a 10-year maturity. Assume these are semi-annual coupon bonds and each has a face value of $1.000 and the required rates of return for similar bonds in the market is 2.5%. What would be the issuing price of these bonds? How many bonds Blackmores will have to issue in order to replace its bank facilities?
Lantech investor is deciding between two bonds: Bond A pay $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Par value of the bonds is $1,000. A. What is the current yield on both bonds? B. Which bond should be chosen and why? C. A drawback of current yield is that is doesn't consider the total life of the bond. E.g. Yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B? D. Is your answer changed from parts B and C based on which bond should be chosen?
The Expectations theory suggests that under certain conditions all bonds outstanding, especially Treasury bonds, must have identical total returns over a 1-year holding period, independently of their final maturity. suppose that today’s interest rate on a 2-year default free zero-coupon Treasury bond that pays $100 at maturity (0i0,2) is 6%. What is today’s price of such a bond (that is, what would you pay to purchase such a bond)?
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000. The 1-year interest rate is 6.5%. Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%. What will the market value of these bonds be if they are noncallable?
Your company wants to raise $8.0 million by issuing 30-year zero-coupon bonds. If the yield to maturity on the bonds will be 5% (annual compounded APR), what total face value amount of bonds must you issue?
A corporation plans to issue $10 million of 10-year bonds in three months. At current yields the bonds would have modified duration of 8 years. The T-note futures contract is selling at F0 =100 and has modified duration of 6 years. How can the firm use this futures contract to hedge the risk surrounding the yield at which it will be able to sell its bonds? Both the bond and the contract are at par value.

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