22. Bond Yields [LO2] Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,083, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?

22. Bond Yields [LO2] Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,083, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

45) Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 37 years, and an annual coupon rate of 11.0%. Flotation costs associated with a new debt issue would equal 3.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 9.0%. The firm's marginal tax rate is 50%. What will the firm's true cost of debt be for this new bond issue? 11.34% 9.29% 4.65% 5.67% 12.74%
A4 3 You bought one of BB Co.’s 10% coupon bonds one year ago for $1100. These bonds make annual payments, have a face value of $1000 each, and mature seven years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 8%. If the inflation rate was 3% over the past year, what would be your total real return on investment according to the Exact Fisher Formula?
5. A coupon bond has a $1000 face value and a 12% coupon rate. It is currently sold at 5940 and is expe cted to be sold at 5960 next year. What is the yield to maturity and the expected rate of capital gain? lf the inflation rate is 4%, what is the real interest rate on this bond? 6. Suppose the Fed is about to have a new chair who thinks the current rate of money growth is too fast. Discuss all the possible scenarios for what will happen to interest rates
26. Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon interest rate of 9.5%, paid semiannually. If you require a 6.75% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond? a. P1,352 b. P1,450 c. P1,111 d. P675
15) a) A pension fund must pay out $1 million next year, $2 million the following year, and then $3 million the year after that. If the discount rate is 8%, what is the duration of this set of payments? b) You own a bond that has a duration of 6 years. Interest rates are currently 7%, but you believe the Fed is about to increase interest rates by 25 basis points. Your predicted price change on this bond is ________. c) You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is ________.
D3) 16. Consider a firm with a market value equal 100. The firm is financed with a zero- coupon bond with a face value of 100, maturing at the end of the year. At the end of the year the value of the firm can be either 130 or 80. The firm has 10 invested in one-year T-bills earning 10%. The firm has just discovered a new project. This project requires an investment of 10 and will be worth at the end of the year, either 8 (when the firm is otherwise worth 130) or 16 (when the firm is otherwise worth 80.) If this project is taken, what will happen to the value of the stock? Multiple Choice Increase by 4.67% increase by 3.33% decrease by 3.33% decrease by 10.00% none of the above.
D4) Suppose that there is 30-year coupon bond with par value of $100 and Macaulay duration of 20.56. The coupon rate is unknown. Currently, the bond is traded at $90 and the yield is flat at 20% pa. Yield to maturity is an annualized simple interest rate compounded annually. If the bond yield increases by 50 basis points, what is the approximation of the percentage capital gain or loss? Please choose the correct range for the percentage capital gain/loss, i.e., if it is -3.5%, please select “A value between -3% and -4%” A value between -9% and -10% A value between -8% and -9% None of the other answers are correct. A value between -7% and -8% A value between -10% and -11%
D3) Finance Suppose that there is 30-year coupon bond with par value of $100 and Macaulay duration of 20.56. The coupon rate is unknown. Currently, the bond is traded at $90 and the yield is flat at 20% pa. Yield to maturity is an annualized simple interest rate compounded annually. If the bond yield increases by 50 basis points, what is the approximation of the percentage capital gain or loss? Please choose the correct range for the percentage capital gain/loss, i.e., if it is -3.5%, please select “A value between -3% and -4%” A value between -9% and -10% A value between -8% and -9% None of the other answers are correct. A value between -7% and -8% A value between -10% and -11%
Mf2. Suppose in Month 1 the yield on ten-year bonds issued by the government in a country was 1.8% (also the coupon rate). In the following Month 2, the yield was 2.3%. Predict the effect of these changes in yield on the price of the ten-year government bonds, assume a face value, 1000. You will need to calculate the duration, modified duration, convexity and clearly explain your results.
40. Bond X pays an annual coupon of 8%, Bond Y pays a 10% annual coupon, and Bond Z pays a 12% annual coupon. The notes have a ten-year term and a ten-percent yield to maturity. Which of the comments below is the most accurate? a. Bond X has the highest chance of reinvestment pace. b. Bond Z's price would be 10% higher one year from today if market interest rates hold at 10%. c. As market interest rates rise, the price of Bond X will rise, the price of Bond Z will fall, and the price of Bond Y will stay unchanged. d. Bond Z's price would be lower one year from now than it is today if market interest rates hold at 10%. e. Once market interest rates fall, all of the bonds would have a price rise, with Bond Z seeing the highest percentage increase.
3. Asea Brown Boveri (ABB Group) Bond has a coupon rate of 14%. Caterpillar Bond has a coupon rate of 6%. Both bonds have 20 years to maturity, a par value of $1,000 and a YTM of 10% and both make semiannual payments. If interest rates suddenly rise by 2%, what is the percentage change in the price of these bonds? Instead, if rates suddenly fall by 2%, what is the percentage change in the price of these bonds? As interest rates fall by 2%, which of the two bonds would you prefer to own. Explain briefly, why?
15.8 Valuing Callable Bonds Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. If the bonds are noncallable, what is the price of the bonds today? If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS