(Related to Checkpoint 9.3) (Bond valuation relationships) You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 15 percent or (ii) decreases to 8 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 12 percent? $(Round to the nearest cent.) C

(Related to Checkpoint 9.3) (Bond valuation relationships) You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 15 percent or (ii) decreases to 8 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 12 percent? $(Round to the nearest cent.) C

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 6FPE

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You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15years. The market's required yield to maturity on a comparable-risk bond is 11 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 16 percent or (ii) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.
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?
(Related to Checkpoint 9.3) (Bond valuation relationships) You own a bond that pays $110 in annual interest, with a $1,000 par value. It matures in 20 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 14 percent or (ii) decreases to 7 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 4 years instead of 20 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 12 percent? (Round to the nearest cent.)
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. A- value of the bond is 863.78. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 15 percent or (ii) decreases to 8 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15years and recalculate your answers in parts a and b.
B. Directions: Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of P100,000 and a stated rate of 12%. Bond B has a face value of P100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has the greatest interest rate risk? 2. Consider two bonds. Bond X has a face value of P100,000 and five years remaining to maturity. Bond Y has a face value of P100,000 and ten years remaining to maturity. Both bonds have the same stated rate of 12%. Which bond has the greatest interest rate risk?
(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual coupon interest rate is 13 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? Question content area bottom Part 1 a. The value of this bond if it paid interest annually would be $enter your response here. (Round to the nearest cent.) Part 2 b. The value of this bond if it paid interest semiannually would be $enter your response here. (Round to the nearest cent.)
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.9%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline. a. What is the coupon payment for this bond? The coupon payment for this bond is $ (Round to the nearest cent.)
(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 16 years has a $1,000 par value. The annual coupon interest rate is 11 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? - a. The value of this bond if it paid interest annually would be $ the nearest cent.) (Round to
Consider a bond with a face value of $1,000 that sells for an initial price of $700. It will pay no coupons for the first nine years and will then pay 11% coupons for the remaining 29 years. Choose an equation showing the relationship between the price of the bond, the coupon (in dollars), and the yield to maturity. O A. B. O C. O D. 700 = 700 = 700 = 700 = 110 110 9 (1+i)⁹ (1+i)⁹+1 + 110 + i) ⁹ + 1 (1 + 1,000 (1+i) 29-9 1,000 (1 + i) 9 +29 + +...+ 110 (1+i) 9+2 + 110 (1 + i)9+29-1 110 + (1 + i) ⁹ + 110 (1+i)9 +29 9+29-1 + 110 (1 + i)9 +29 + 1,000 (1+i) 9+29
(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 15 years has a $1,000 par value. The annual coupon interest rate is 11 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? a. The value of this bond if it paid interest annually would be $ (Round to the nearest cent.)
What is the market price of a bond if the face value is $1,000 and the yield to maturity is 6.7% ? The bond has a 6.15% coupon rate and matures in 12 years. The bond pays interest semiannually. Please express answer as $X.XX or XX.XX and use rounding guideline included in "Course Information" module. Do not round until the final result.
c) Suppose you observe the following three bonds. Assume that all bonds are denominated at $100 face value per contract and that they pay their coupons annually. Price Coupon Maturity (years) Bond A 111.42 15 3 Bond B 108.33 15 Bond C 116.61 15 1 i) Compute the spot rates r0,1, r0,2 and r0,3. ii) Compute the forward rates r1,2 and r2,3.