L0 percent coupon bond sells at par. Two years from now, the required retur is 8 percent. What is the coupon rate on the bond? What is the YTM on the
L0 percent coupon bond sells at par. Two years from now, the required retur is 8 percent. What is the coupon rate on the bond? What is the YTM on the
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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Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:explain your process.
1. Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return
on the same bond is 8 percent. What is the coupon rate on the bond? What is the YTM on the
bond?
2. Vinya Inc. has 7.5 percent coupon bonds on the market that have 10 years left to maturity. The
bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current
bond price? Assume the par value of a bond is $1,000. Do not round intermediate calculations
and round your final answer to 2 decimal places.
3. Popie Drink Corp issued 12 year bonds 2 years ago at a coupon rate of 8.4 percent. The bonds
make semi-annual payments. If these bonds currently sell for 105 percent of par value, what is
the YTM? Assume the par value of a bond is $1,000. Do not round intermediate calculations
and round your final answer to 2 decimal places.
4. Treasury bills are currently paying 7 percent and the inflation rate is 3.8 percent. What is the
approximate real rate of interest? What is the exact real rate? Round your answer to 2 decimal
places.
5. An investment offers a 14 percent total return over the coming year. Tom Jones thinks the total
real return on the investment will be only 9 percent. What does Tom believe the inflation rate
will be over the next year? Do not round intermediate calculations and round your final answer
to 2 decimal places.
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