Financial Management-Chapter 7 Solution- Gitman

The value of a bond is found as the present value of interest payments plus

1(a) Regular Treasury bonds are purchased at face value in the beginning or an adjusted price prior maturity. And in every period, normally annul or semiannual, investor will receive a coupon as an interest and at the maturity a principal plus coupon.

At what price will the bonds issue? (Do not round PV factors. Round your answer to the nearest dollar amount. Omit the "$" sign in your

Premium or discount occurs when nominal interest rate(or coupon rate) of the bond differs from the current market rate of interest demanded by lenders.Regardless of the required yield, the bond price will reach face value as its approaches the maturity date.

1.00 point A bond with a 7-year duration is worth $1,073, and its yield to maturity is 7.3%. If the yield to maturity falls to 7.21%, you would predict that the new value of the bond will be approximately _________.

2. An 8 percent semiannual coupon bond is priced at $1,204.60. The bond has a

The bonds have 20 years to maturity, pay interest at 9.3%, have a par value of $1,000 and are currently selling for $890.

b. Generate a graph or table showing how the bond’s present value changes for semi-annually compounded interest rates between 1% and 15%.

2. The discount rate for this bond would be 0.70%. I started with an appropriate discount rate to derive my bond purchase price, since I would not purchase a bond without finding out ahead of time what a good price should be.

Through this method, we obtained theoretical yields of the 4.25% coupon bond and 10.625% coupon bond to be 2.899% and 2.639% respectively. The corresponding theoretical prices of the bonds are $108.27 for the 4.25% coupon bond and $149.31 for the 10.625% coupon bond (see Table 1 above).

1. The cause to the conflict in the rankings is that while the IRR ranking shows a percentage so that you can see what percentage you are making on certain amount, it does not show the size of the project.

- The lesson gives us some examples, Individuals purchase Patriot Bonds at 50 percent of their face value (such as $25 for a $50 bond). The bond can be cashed in for the full face value of the bond once the interest rate has raised the initial purchase price to the face value of the bond. With these bonds, there is no exact maturity date since the interest rate may vary.

First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14

Coupon bond is one that is below its nominal value. 99.05 It is less than 100 percent of the cash value of the price, which will be traded. Above the face value of the bond premium bond. 101,15 more than 100 percent of the cash value of your price quote. Market interest rates rise above the coupon rate of the bond discount bond when the bond is. Market interest rates, the bond 's coupon rate is below the bonds when the bond underwriters.

3. A european corporation has issued bonds with a par value of Sfr 1,000 and an annual coupon of 5 percent. The last coupon on these bonds was paid four months ago, and their current clean price is 90 percent.