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![Problem 7-3 Valuing Bonds [LO2]
Even though most corporate bonds in the United States make coupon payments
semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a
German company issues a bond with a par value of €1,000, 10 years to maturity, and a
coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is
the current price of the bond? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
Current price
€ 876.30 x
L](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F55860298-368b-43bf-92d7-653b8484118a%2F178b28ec-3ba1-4afc-8acf-c5070f46ba4c%2Frhqh0rd_processed.jpeg&w=3840&q=75)
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Solved in 3 steps with 2 images
- Problem 6-3 Bond Prices [LO 2] Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 7 years to maturity, and a coupon rate of 8.8 percent paid annually. If the YTM is 10.8 percent, what is the current bond price in euros?D6 Assume you own a 2-year US Treasury Note with a 5% coupon and a 7-year US Treasury Note with a 0% coupon. If market interest rates decrease by 100 basis points in the 2-year maturity and declined by only 75 basis points in the 7-year maturity, which bond would experience the smallest market value change? a. 5% US Treasury due in 2 years b. 0% US Treasury due in 7 years c. Both would change by the same amount d. Prices would not change since the coupons are fixedQuestion 2 Two bonds are available for purchase in the financial markets. The first bond is a two-year, 50,000 AUD bond that pays an annual coupon of 6 per cent. The second bond is a two- year, 10,000 AUD, zero-coupon bond. (a) What is the duration of the coupon bond if the current yield-to-maturity (R) is 6 per cent? And 8 per cent? How does the change in the current yield to maturity affect the duration of this coupon bond? (b) Calculate the duration of the zero-coupon bond with a yield to maturity of 5 per cent, and 8 per cent.
- Question 6 You hold a zero coupon bond when there is a sudden change in interest rates. It has 18 years to maturity. Yield to maturity is 0.055, and rates change by FALLING -0.008 overnight.By how much does your bond change in value as a percentage or decimal?(Zero coupon bonds assume semi-annual compounding.) 0.1601 0.1689 0.1508 0.1642 0.1556Problem 8.15 Marshall Company is issuing eight-year bonds with a coupon rate of 7.85 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.53 percent. What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.) Bond price If the company wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.) Number of bonds bondsProblem 3 Linz Styles Coupon Rate (RWJJ Ch. 20, Q5) Linz Stylers intends to issue perpetual callable bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 11 percent. There is a 60 percent probability that long-term interest rates one year from today will be 13 percent, and a 40 percent probability that long-term interest rates will be 9 percent or even lower. Assume that if interest rates fall, the fall will be sufficient for the bonds to be called. What coupon rate should the bonds have in order to sell at par value?
- D Question 6 You hold a zero coupon bond when there is a sudden change in interest rates. It has 17 years to maturity. Yield to maturity is 0.055, and rates change by FALLING -0.008 overnight. By how much does your bond change in value as a percentage or decimal? (Zero coupon bonds assume semi-annual compounding.) 0.1456 0.1372 0.1299 0.1418 0.1341QUESTION THREE (a) Even though most corporate bonds in the World make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. A Zambian company issues a bond with a par value of K1,000, 15 years to maturity, and a coupon rate of 8.4 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond? (b) A Japanese company has a bond outstanding that sells for 87 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 21 years. What is the yield to maturity of this bond?Problem 6-19 Interest Rate Risk (LO3) Consider three bonds with 5.00% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years. ts a. What will be the price of the 4-year bond if its yield increases to 6.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the price of the 8-year bond if its yield increases to 6.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What will be the price of the 30-year bond if its yield increases to 6.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What will be the price of the 4-year bond if its yield decreases to 4.00%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will be the price of the 8-year bond if its yield…
- Problem 6-19 Interest Rate Risk (LO3) Consider three bonds with 5.10% coupon rates, all making annual coupon payments and all selling at face value. The short- term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years. a. What will be the price of the 4-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the price of the 8-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What will be the price of the 30-year bond if its yield increases to 6.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What will be the price of the 4-year bond if its yield decreases to 4.10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will be the price of the 8-year bond if its yield…Ins 8. Suppose that today's interest rate on 1-year bonds is 4% (i10 year bonds next year, in two years, and in three years are expected to be 5%, 6%, and 7%, respectively. 0.04). Interest rates on 1- ha a. According to the Expectations Theory of Term Structure, what are the equilibrium interest rates today for otherwise comparable 2-year, 3-year, and 4-year bonds? b. Draw the yield curve for that case. or38 Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 10 years to maturity, and a coupon rate of 7.7 percent paid annually. If the YTM is 9.7 percent, what is the current bond price in euros? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Current bond price