EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Question
Chapter 6, Problem 16P
Summary Introduction
To determine: The amount paid by person X for the bond today.
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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…
KIC Inc. plans to issue $5.0 million of bonds with a coupon rate of 10 percent paid semiannually and 30 years to maturity. The current one-year market interest rate on these bonds is 9 percent. In one year, the interest rate on the bonds will be either 12 percent or 6 percent with equal probability. Assume investors are risk neutral.
If the bonds are non-callable, what is the price of the bonds today?
Zabberer Corporation bonds pay a coupon rate of interest of 12 percent annually and have a maturity value of $1,000. The bonds are scheduled to mature at the end of 14 years. The company has the option to call the bonds in 9 years at a premium of 9 percent above the maturity value. You believe the company will exercise its option to call the bonds at that time.
If you require a pretax return of 11 percent on bonds of this risk, how much would you pay for one of these bonds today? Use Table II and Table IV to answer the question. Round your answer to the nearest dollar.
$
Chapter 6 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 6 - Prob. 1QTDCh. 6 - Prob. 2QTDCh. 6 - Prob. 3QTDCh. 6 - Prob. 4QTDCh. 6 - Prob. 5QTDCh. 6 - Prob. 6QTDCh. 6 - Prob. 7QTDCh. 6 - Prob. 8QTDCh. 6 - Prob. 9QTDCh. 6 - Prob. 11QTD
Ch. 6 - Prob. 12QTDCh. 6 - Prob. 13QTDCh. 6 - Prob. 14QTDCh. 6 - Prob. 15QTDCh. 6 - Prob. 16QTDCh. 6 - Prob. 17QTDCh. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Prob. 7PCh. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - Prob. 10PCh. 6 - Prob. 11PCh. 6 - Prob. 12PCh. 6 - Prob. 13PCh. 6 - Prob. 14PCh. 6 - Prob. 15PCh. 6 - Prob. 16PCh. 6 - Prob. 17PCh. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - Prob. 20PCh. 6 - Prob. 21PCh. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - Prob. 24PCh. 6 - Prob. 25PCh. 6 - Prob. 26PCh. 6 - Prob. 27P
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