(Bond valuation-zero coupon) The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 5 percent, compounded annually. At what price should the Latham Corporation sell these bonds? ACCESS The price of the Latham Corporation bonds should be $ (Round to the nearest cent.)

(Bond valuation-zero coupon) The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 5 percent, compounded annually. At what price should the Latham Corporation sell these bonds? ACCESS The price of the Latham Corporation bonds should be $ (Round to the nearest cent.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 21P: Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an...

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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? Please explain the difference between YTM and YTC.
Laurel, Inc., and Hardy Corp. both have 8 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has three years to maturity, whereas the Hardy Corp. bond has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Laurel, Inc., bond % Percentage change in price of Hardy Corp. bond % If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Laurel, Inc., bond % Percentage change in price of…
Taussig Corp.'s bonds currently sell for P1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at P1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
Lackson PLC and Hardy Corp. both have 8 percent coupon bonds outstanding, withsemiannual interest payments, and both are priced at par value. The Lackson PLC bondhas 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.(i) If interest rates suddenly rise by 2 percent, what is the percentage change in the priceof these bonds? (ii) If interest rates were to suddenly fall by 2 percent instead, what would the percentagechange in the price of these bonds be then? (iii) What does this problem tell you about the interest rate risk of longer-term bonds?
Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has three years to maturity, whereas the Hardy Corp. bond has 18 years to maturity. a.If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)b.If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of each bond? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Laurel, Inc., and Hardy Corp. both have 6 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has two years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then?
Marshall Company is issuing eight-year bonds with a coupon rate of 6.19 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.23 percent. What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.) Bond price $ ___________ If the company wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.) Number of bonds _____________ Bonds
McCue Inc.'s bonds currently sell for $1,175. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.) Select one: a. 1.47% b. 1.68% c. 1.88% d. 1.26% e. 1.74%
Marshall Company is issuing eight-year bonds with a coupon rate of 6.19 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.23 percent. a). What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.) Bond price $ ________________ b). If the company wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.) Number of bonds ____________bonds?
Kholdy Inc's bonds currently sell for $1,275. They pay a $120 annual coupon and have a 20- year maturity and a par value of $1000, but they can be called in 5 years at $1,120. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bond's YTM (Yield to Maturity) and YTC (Yield To Call)?