The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 20% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 8.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? OA. This bond is priced at $54.45 per $100 face value with a YTM of 12.9% OB. This bond is priced at $68.06 per $100 face value with a YTM of 8.0%. OC. This bond is priced at $57.85 per $100 face value with a YTM of 8.0%. OD. This bond is priced at $57.85 per $100 face value with a YTM of 11.6%. OE. This bond is priced at $85.00 per $100 face value with a YTM of 3.3%.

The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 20% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 8.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? OA. This bond is priced at $54.45 per $100 face value with a YTM of 12.9% OB. This bond is priced at $68.06 per $100 face value with a YTM of 8.0%. OC. This bond is priced at $57.85 per $100 face value with a YTM of 8.0%. OD. This bond is priced at $57.85 per $100 face value with a YTM of 11.6%. OE. This bond is priced at $85.00 per $100 face value with a YTM of 3.3%.

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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Caspian Sea Drinks needs to raise $35.00 million by issuing bonds. It plans to issue a 14.00 year semi-annual pay bond that has a coupon rate of 5.17%. The yield to maturity on the bond is expected to be 4.72%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond.)
Your answer is correct. Cullumber, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 6.0 percent, how much will Cullumber pay to buy back its current outstanding bonds? Assume face value is $1,000. (Round answer to 2 decimal places, e.g. 15.25.) Cullumber will pay +A $ 1084.72
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $100 and is currently selling for $900. Airborne is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Yield on new issue :
A manager of a commercial bank’s security portfolio is analyzing three bonds and is using duration as the measure of interest rate risk. The three bonds all trade at a yield to maturity of 10 percent and have $10,000 par values. The bonds differ only in the amount of annual coupon interest that they pay: 8, 10, or 12 percent. What is the duration for each five-year bond? What is the relationship between duration and the amount of coupon interest that is paid?
Give typing answer with explanation and conclusion
Consider a one-year, 5-percent coupon bond with a face value of $100 issued by a Seabass Corporation. There is a 10 percent probability that it will default on its bonds and the risk-free interest rate (i) is 3.0%. If an investor were willing to pay $917.48 for the bond, is that investor risk-neutral or risk averse
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.).
Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.8 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today?
Ezzell Enterprises' noncallable bonds currently sell for $1,218.00. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 40% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 7.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? OA. This bond is priced at $42.78 per $100 face value with a YTM of 18.5% OB. This bond is priced at $49.91 per $100 face value with a YTM of 14.9% OC. This bond is priced at $71.30 per $100 face value with a YTM of 7.0%. OD. This bond is priced at $49.91 per $100 face value with a YTM of 7.0%. OE. This bond is priced at $70.00 per $100 face value with a YTM of 7.4%.
Katie Pairy Fruits Incorporated has a $2,200 23-year bond outstanding with a nominal yield of 15 percent (coupon equals 15 % × $2,200 = $330 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. Current price of the bond b. Find the present value of 3 percent x $2,200 (or $66) for 23 years at 12 percent. The $66 is assumed to be an annual payment. Add this value to $2,200. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual, Present value
The Chauncey Corporation currently has a bond outstanding with a coupon rate of 6 percent and annual payments. The bond is currently selling for $983.04. The bond matures in 11 years and has a par value is $1,000. What is the yield to maturity (YTM) of The Chauncey Company's bonds? a)3.11% b)12.29% c)6.37% d)None of these options are correct e) 6.22%

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