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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A company has issued a zero-coupon bond with a two-year maturity. The face value of each bond is $1,000. Investors believe that this company will default for sure on these bonds. Due to the default, investors will receive only 60 cents per dollar they are owed. Investors require an 6% return on their investment in these bonds. (Reminder: this is the applicable discount rate). The yield to maturity on these bonds (assume annual compounding) is closest to? Select one: A. 39.43% В. 35.55% C. 40.72% D. 38.14% E. 36.85%
Grummon Corporation has issued zero-coupon bonds with five-year maturity. Investors believe there is a 20% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 50 cents per dollar they are owed. If investors require a 6% expected return on their investments in these bonds, what will be the price and the yield to maturity on these bonds?
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 current one-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 9 percent 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 in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Price of the bonds $ $3,799,246.63 b. 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 than Less than c. If the bonds are callable one year from today at $1,575, what is the current price of the bond? (Do not round Intermediate calculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current…
Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 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? b.If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why? please show all work.
Grummon Corporation has just issued zero-coupon corporate bonds with a 5-year maturity. The face value of the bond is $100. Investors believe there is a 10% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 20 cents per dollar they are owed. Assume investors require a 5% expected return on their investment in these bonds.
Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 8 percent or 4 percent with equal probability. Assume investors are risk- neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds
Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 11 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.2 percent coupon bonds are selling at a price of $790.40. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions. - What is the current YTM of the bonds?
Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond. Russell Corp. 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. b. Make the appropriate tax adjustment to determine the aftertax cost of debt.
Jackson Central has a 6-year, 8% annual coupon bond with a $1,000 par value. Earls Enterprises has a 12-year, 8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6%. If the market yield increases to 7%, which bond will you recommend to your client? I need this answer to be done in excel. Kindly don't try to provide the answer from Chegg as they are incorrect (thoroughly checked) Please provide the layout and the complete answer in excel format.
Assets, Incorporated, plans to issue $8 million of bonds with a coupon rate of 7.1 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 6.6 percent. In one year, the interest rate on the bonds will be either 9 percent or 4 percent with equal probability. Assume investors are risk-neutral. If the bonds are noncallable, what is the price of the bonds today?
Kholdy Inc's bonds currently sell for $1,275. They pay a $120 annual coupon and have a 20- year maturity and a par value of $1000, but they can be called in 5 years at $1,120. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bond's YTM (Yield to Maturity) and YTC (Yield To Call)?

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