Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 16, Problem 8P
Assume the par
The yield to maturity for 10-year bonds is as follows for four different bond rating categories:
The bonds of Falter Corporation were rated as Aaa and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determine the new price of the bonds, assuming a 10-year maturity and semiannual interest payments. (Refer to “Semiannual Interest and Bond Prices� in Chapter 10 for a review if necessary.)
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You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall
Street Journal reports that 1-year T-bills are currently earning 3.25 percent. Your broker has determined the following information about
economic activity and Moore Corporation bonds: (LG 2-6)
Real risk-free rate=2.25%
Default risk premium = 1.15%
Liquidity risk premium - 0.50%
=
Maturity risk premium = 1.75%
a. What is the inflation premium?
b. What is the fair interest rate on Moore Corporation 30-year bonds?
The Victoria Telephone Company has a $1,000 par value bond outstanding that pays 18 percent interest with annual payments. The
current yield to maturity on such bonds in the market is 19 percent. Use Appendix B and Appendix D.
Compute the price of the bonds for these maturity dates: (Round "PV Factor" to 3 decimal places. Do not round intermediate
calculations. Round the final answers to 2 decimal places.)
a. 25 Year
b. 18 Year
c. 1 Year
Price of the
bond
$948.05
$ 949.67
$991.60
0 0 0
Essex Biochemical Company has a $1,000 par value bond outstanding that pays 10 percent annual interest. The current yield to maturity on such bonds in the market is 8 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the price of the bonds for the maturity dates: Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.
a: 30 years
b: 16 years
c: 1 years
Chapter 16 Solutions
Foundations of Financial Management
Ch. 16 - Prob. 1DQCh. 16 - What are some specific features of bond...Ch. 16 - What is the difference between a bond agreement...Ch. 16 - Discuss the relationship between the coupon rate...Ch. 16 - Prob. 5DQCh. 16 - What method of “bond repayment� reduces debt...Ch. 16 - What is the purpose of serial repayments and...Ch. 16 - Under what circumstances would a call on a bond be...Ch. 16 - Discuss the relationship between bond prices and...Ch. 16 - Prob. 10DQ
Ch. 16 - Prob. 11DQCh. 16 - Bonds of different risk classes will have a spread...Ch. 16 - Prob. 13DQCh. 16 - Prob. 14DQCh. 16 - Explain how the zero-coupon rate bond provides...Ch. 16 - Prob. 16DQCh. 16 - Prob. 17DQCh. 16 - Prob. 18DQCh. 16 - Prob. 19DQCh. 16 - Prob. 20DQCh. 16 - Prob. 1PCh. 16 - Prob. 2PCh. 16 - Assume the par value of the bonds in the following...Ch. 16 - Assume the par value of the bonds in the following...Ch. 16 - Assume the par value of the bonds in the following...Ch. 16 - Assume the par value of the bonds in the following...Ch. 16 - Prob. 7PCh. 16 - Assume the par value of the bonds in the following...Ch. 16 - Assume the par value of the bonds in the following...Ch. 16 - Prob. 10PCh. 16 - Prob. 11PCh. 16 - Prob. 12PCh. 16 - Prob. 13PCh. 16 - Prob. 14PCh. 16 - Prob. 15PCh. 16 - Prob. 16PCh. 16 - Prob. 17PCh. 16 - Prob. 18PCh. 16 - Prob. 19PCh. 16 - Prob. 20PCh. 16 - Prob. 21PCh. 16 - Prob. 22PCh. 16 - Prob. 2WECh. 16 - Go back to the summary page and follow the same...
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