Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 7, Problem 23QP
Accrued Interest [LO2] You purchase a bond with an invoice price of $1,035. The bond has a coupon rate of 5.9 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond?
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A one-year zero coupon bond costs $99.43 today.
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A bond has 12 years until maturity and a coupon rate of 8.2% payable semi-annually; and sells for $1,080. Face value of the bond is $1,000. What is the capital gain yield if you keep the bond for one year? You can assume the market rate is not changing.
5
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it
matures, your realized return is known as the holding period yield (HPY).
a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.2 percent for $845. The bond has 10 years to maturity
and a par value of $1,000. What rate of return do you expect to earn on your investment?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
b-2. What is the HPY on your investment?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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a. Rate of return
b-1. Price
b-2. Holding…
Chapter 7 Solutions
Fundamentals of Corporate Finance
Ch. 7.1 - What are the cash flows associated with a bond?Ch. 7.1 - What is the general expression for the value of a...Ch. 7.1 - Is it true that the only risk associated with...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Prob. 7.2CCQCh. 7.3 - What does a bond rating say about the risk of...Ch. 7.3 - What is a junk bond?Ch. 7.4 - Prob. 7.4ACQCh. 7.4 - What do you think would be the effect of a put...
Ch. 7.5 - Why do we say bond markets may have little or no...Ch. 7.5 - Prob. 7.5BCQCh. 7.5 - What is the difference between a bonds clean price...Ch. 7.6 - What is the difference between a nominal and a...Ch. 7.6 - What is the Fisher effect?Ch. 7.7 - What is the term structure of interest rates? What...Ch. 7.7 - What is the Treasury yield curve?Ch. 7.7 - What six components make up a bonds yield?Ch. 7 - Prob. 7.1CTFCh. 7 - The 10-year bonds issued by KP Enterprises were...Ch. 7 - Prob. 7.4CTFCh. 7 - Prob. 7.6CTFCh. 7 - The term structure of interest rates is based on...Ch. 7 - Treasury Bonds [LO1] Is it true that a U.S....Ch. 7 - Interest Rate Risk [LO2] Which has greater...Ch. 7 - Treasury Pricing [LO1] With regard to bid and ask...Ch. 7 - Prob. 4CRCTCh. 7 - Call Provisions [LO1] A company is contemplating a...Ch. 7 - Coupon Rate [LO1] How does a bond issuer decide on...Ch. 7 - Prob. 7CRCTCh. 7 - Prob. 8CRCTCh. 7 - Prob. 9CRCTCh. 7 - Term Structure [LO5] What is the difference...Ch. 7 - Crossover Bonds [LO3] Looking back at the...Ch. 7 - Municipal Bonds [LO1] Why is it that municipal...Ch. 7 - Bond Market [LO1] What are the implications for...Ch. 7 - Prob. 14CRCTCh. 7 - Bonds as Equity [LO1] The 100-year bonds we...Ch. 7 - Prob. 1QPCh. 7 - Interpreting Bond Yields [LO2] Suppose you buy a 7...Ch. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Coupon Rates [LO2] Essary Enterprises has bonds on...Ch. 7 - Bond Prices [LO2] Sqeekers Co. issued 15-year...Ch. 7 - Prob. 7QPCh. 7 - Coupon Rates [LO2] DMA Corporation has bonds on...Ch. 7 - Zero Coupon Bonds [LO2] You find a zero coupon...Ch. 7 - Valuing Bonds [LO2] Yan Yan Corp. has a 2,000 par...Ch. 7 - Valuing Bonds [LO2] Union Local School District...Ch. 7 - Calculating Real Rates of Return [LO4] If Treasury...Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Nominal versus Real Returns [LO4] Say you own an...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Bond Price Movements [LO2] Bond X is a premium...Ch. 7 - Interest Rate Risk [LO2] Both Bond Sam and Bond...Ch. 7 - Interest Rate Risk [LO2] Bond J has a coupon rate...Ch. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Accrued Interest [LO2] You purchase a bond with an...Ch. 7 - Prob. 24QPCh. 7 - Finding the Bond Maturity [LO2] Shinoda Corp. has...Ch. 7 - Prob. 26QPCh. 7 - Bond Prices versus Yields [LO2] a. What is the...Ch. 7 - Prob. 28QPCh. 7 - Zero Coupon Bonds [LO2] Suppose your company needs...Ch. 7 - Finding the Maturity [LO2] Youve just found a 10...Ch. 7 - Prob. 31QPCh. 7 - Components of Bond Returns [LO2] Bond P is a...Ch. 7 - Holding Period Yield [LO2] The YTM on a bond is...Ch. 7 - Valuing Bonds [LO2] Jallouk Corporation has two...Ch. 7 - Valuing the Call Feature [LO2] At one point,...Ch. 7 - Prob. 36QPCh. 7 - Real Cash Flows [LO4] When Marilyn Monroe died,...Ch. 7 - Prob. 38QPCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 7MCh. 7 - Prob. 8MCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 10M
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- 2:36 a. The value of this bond if it paid interest annually would be $ (Related to Checkpoint 9.4) (Bond valuation) A bond that matures in 15 years has a $1,000 par value. The annual coupon interest rate is 12 percent and the market's required yield to maturity on a comparable-risk bond is 17 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? ||| = Vol) 1 LTE2 O 4Gl 41% (Round to the nearest cent.)arrow_forward3. Suppose that you observe the following two bonds being traded, both of which pay coupons annually and have a $100 face value: Bond Coupon Maturity Rate A B 6% 2% 30 years 30 years Price $147.13 $64.47 If the Law of One Price holds, what is the price of a 30-year Annuity that pays $8 per year starting at t = 1?arrow_forward5. An annual bond has the following features: Face value $1,000 Maturity 17 years Coupon rate 10% Discount rate 12% a. What is the market value of the bond? b. If you bought the bond for $711.96, did you make a profit or a loss? c. Would you buy the bond if it is currently selling for $800.00?arrow_forward
- K← Consider the case of a two-year discount bond-that is, a bond that pays no coupon and pays its face value after two years rather than one year. Suppose the face value of the bond is $1,000, and the price is $850. What is the bond's yield to maturity? The bond's yield to maturity is%. (Round your response to two decimal places.)arrow_forwardQuestion2 (iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing20% coupon rate. The market interest rate is 25%. The coupons are paid every sixmonths. You are to calculate the price of this bond.arrow_forwardQuestion 6. A two-year coupon bond has the following characteristics: Buying price: 18750 $ Face Value: 20000 S Annual interest rate: 5% Mode of payment: Quarterly What will be the final earning in acquiring such as a bond?arrow_forward
- 8. Bond Pricing. A 6-year Circular File bond with face value $1,000 pays interest once a year of $80 and sells for $950. (LO6-2) a. What is its b. What is its yield to maturity? c. If Circular wants to issue a new 6-year bond at face value, what coupon rate must the bond offer? coupon rate?arrow_forwardQuestion #3: Bond Pricing and Bond Return (a) A 20 year $1000 face value coupon bond that pays an coupon rate of 12%. The YTM = 15%. Assume that the coupon payment is paid semi-annually. (b) Suppose that next year, the YTM falls to YTM = 13%. Calculate the new price of the bond from Part (a). [Hint: One year has passed since the bond was initially purchased.] (c) Use your answers from Parts (b) and (c) to calculate the one year holding period return of the coupon bond.arrow_forward4. Suppose the U.S. Federal Reserve offers a bond for $635.20 at 8 years to maturity. You will not have to issue payments until the maturity date, at which time you will receive $950. Calculate the interest rate if you decide to buy it. Determine the interest rate if you manage to buy it at a price of $555.arrow_forward
- 1. Bonds A S1000 bond has a coupon rate of 8 percent and coupons are payable annually. Suppose are 10 years left on the bond, and you purchased it at a yield of maturity of 9%. there a. How much are you paying for the bond? b. Are you buying at a premium or discount? Explain. c. What is the current yield of the bond? d. Suppose you expect to sell you bond next year to yield a rate of return of 5%, what is the expected selling price of the bond? e. What is the yield to maturity when you sell it?arrow_forwardQ.2:A 16% callable bond, having 19 years to maturity has a market price of $1400. What value you would place on this bond if the market required return is 18%. If the bond is called after 11 years and a call premium is paid, which is equal to the next 3 year's advance coupon payment (as mentioned in the indenture), should this bond be purchased or not? Give reasons to justify your answer.arrow_forwardQUESTION 1 What is the coupon rate for the bond? Assume semi-annual payments. Answer as a percent! Bond Coupon Rate Yield Price 2.7% $990.90 Apple B ? t 16 QUESTION 2 A bond has a coupon rate of 6,3% and pays coupons annually. The bond matures in 2 years and the yield to maturity on similar bonds is 3.7%. What is the price of the bond?arrow_forward
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