Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 3, Problem 25PS
Summary Introduction
To determine: The discount factor,
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The current yield is defined as the annual interest on a bond divided by par value.Select one:TrueFalse
This first table describes prevailing market interest rates.
Market Data
Yield
0.05
Required:
Using the yield above and the information contained in the table below, please calculate the price and duration of the bond as well as all necessary steps.
(Use cells A5 to B5 from the given information to complete this question.)
Time Until Payment
Payment
Discounted Payment
Weight
Time × Weight
1.00
$30.00
2.00
$30.00
3.00
$30.00
4.00
$1,030.00
Price:
Duration
The following table summarizes the prices of various default-free zero-coupon bonds (expressed as a percentage of the face value):
a. Compute the yield to maturity for each bond.
b. Plot the zero-coupon yield curve (for the first five years).
c. Is the yield curve upward sloping, downward sloping, or flat?
Chapter 3 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Prob. 1PSCh. 3 - Bond prices and yields The following statements...Ch. 3 - Prob. 3PSCh. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Spot interest rates and yields Which comes first...
Ch. 3 - Prob. 7PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Prob. 9PSCh. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Prob. 16PSCh. 3 - Prob. 17PSCh. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 20PSCh. 3 - Prob. 21PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 23PSCh. 3 - Prob. 25PSCh. 3 - Prob. 26PSCh. 3 - Prob. 27PSCh. 3 - Prob. 28PSCh. 3 - Prob. 29PSCh. 3 - Prices and yields If a bonds yield to maturity...Ch. 3 - Prob. 31PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 33PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Use the following table to find the bond value: a. Price the bonds from the above table with annual coupon payments. b. Price the bonds from the above table with semiannual coupon payments.arrow_forwardShow all workings. Complete the following table and draw a graph showing how bond pricefor each bond changes over time as they move towards their maturitydates. Describe the relationship between bond prices and timeremaining for maturity.YearsreminingtomaturityBOND ACoupon rate = 8% p.a.Market interest rate =6% p.a.BOND BCoupon rate = 6% p.a.Market interest rate =6% p.a.BOND CCoupon rate = 4% p.a.Market interest rate =6% p.a.109876543210arrow_forwardThe bond shown in the following table attached pays interest annually. a. Calculate the yield to maturity (YTM)for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain.arrow_forward
- can you may this calculations for each of my bonds?. For each of your bonds, calculate expected defavvult percent loss as = default probability* (1 - recovery rate ). You will need to use the default rates and recovery rates that match each bond's rating. 4. Calculate the overall expected loss to your portfolio as the weighted average of the expected default percent lossarrow_forwardUnlike the coupon interest rate, which is fixed, a bond's yield varies from day to day depending on market conditions. To be most useful, it should give us an estimate of the rate of return an investor would earn if that investor purchased the bond today and held it for its remaining life. There are three different yield calculations: Current yield, yield to maturity, and yield to call. A bond's current yield is calculated as the annual interest payment divided by the current price. Unlike the yield to maturity or the yield to call, it does not represent the actual return that investors should expect because it does not account for the capital gain or loss that will be realized if the bond is held until it matures or is called. This yield was popular before calculators and computers came along because it was easy to calculate; however, because it can be misleading, the yield to maturity and yield to call are more relevant. The yield to maturity (YTM) is the rate of return earned on a…arrow_forwardIf the interest rates on 1-, 5-, 20-, and 30-year bonds are (respectively)4%, 5%, 6%, and 7%, then how would you describe the yield curve?How would you describe it if the rates were reversed?arrow_forward
- The bond shown in the following table pays interest annually in the table attached. a. Calculate the yield to maturity (YTM) for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain.arrow_forwardCan the price of bond B be determined using the PV function or any other function in excel? What is the EAR (effective annual rate) of these two bonds?arrow_forwardComplete the following table and draw a graph showing how bond price for each bond changes over time as they move towards their maturity dates. Describe the relationship between bond prices and time remaining for maturity. Years remaining to maturity BOND A Coupon rate = 8% p.a. Market interest rate = 6% p.a. BOND B Coupon rate = 6% p.a. Market interest rate = 6% p.a. BOND C Coupon rate = 4% p.a. Market interest rate = 6% p.a.arrow_forward
- Explain what you see from the pricing calculations. How do the two bonds differ? Bond C Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 10%*$1,000 = $100 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 Bond Z Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 0%*$1,000 = $0.00 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 years Bond A Bond Z 4 $1,012.79 $693.04 3 $1,010.02 $759.57 2 $1,006.98 $832.49 1 $1,003.65 $912.41 0 $1,000.00 $1,000.00arrow_forwardThe following information about bonds A, B, C, and D are given. Assume that bond prices admit noarbitrage opportunities. What is the convexity of Bond D?Cash Flow at the end ofBond Price Year 1 Year 2 Year 3A 91 100 0 0B 86 0 100 0C 78 0 0 100D ? 5 5 105arrow_forwardеВook Problem Walk-Through Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,200. a. What are the bond's nominal yield to maturity and its nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % Would an investor be more likely to earn the YTM or the YTC? -Select- -Select- ent yield and to Table 7.1) Round your answer to two decimal places. b. Since the YTM is above the YTC, the bond is likely to be called. Since the YTC is above the YTM, the bond is likely to be called. Since the YTM is above the YTC, the bond is not likely to be called. Since the YTC is above the YTM, the bond is not likely to be called. Since the coupon rate on the bond has declined, the bond is not likely to be called. I. If the bond is called, the capital gains yield will remain the same but the current yield will be…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License