Draw a graph showing how the bond price for each bond changes over time as they move towards their maturity dates. Describe the relationship between bond prices and the time remaining for maturity. Years remaining to Maturity 10 9 8 0765 40 NA 3 2 0 BOND A Coupon rate = 8% p.a. Market interest rate = 6% p.a. $109.67 $108.72 $107.79 $106.88 $105.98 $105.10 $104.23 $103.38 $102.54 $101.72 $100.00 BOND B Coupon rate = 6% p.a. Market interest rate = 6% p.a. $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 BOND C Coupon rate = 4% p.a. Market interest rate = 6% p.a. $95.24 $91.08 $87.02 $83.06 $79.21 $75.47 $71.83 $68.29 $64.86 $61.54 $58.33

Draw a graph showing how the bond price for each bond changes over time as they move towards their maturity dates. Describe the relationship between bond prices and the time remaining for maturity. Years remaining to Maturity 10 9 8 0765 40 NA 3 2 0 BOND A Coupon rate = 8% p.a. Market interest rate = 6% p.a. $109.67 $108.72 $107.79 $106.88 $105.98 $105.10 $104.23 $103.38 $102.54 $101.72 $100.00 BOND B Coupon rate = 6% p.a. Market interest rate = 6% p.a. $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 BOND C Coupon rate = 4% p.a. Market interest rate = 6% p.a. $95.24 $91.08 $87.02 $83.06 $79.21 $75.47 $71.83 $68.29 $64.86 $61.54 $58.33

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.1E

See similar textbooks

Similar questions

a. Reset the Data Section to its initial values. The price of this bond is 1,407,831. What would it be if there were only 9 or 8 years to maturity? Use the worksheet to compute the bond issue prices and enter them in the spaces provided. Bond issue price (9 years to maturity) __________________ Bond issue price (8 years to maturity) __________________ b. Compare these prices to the bond-carrying values found in the effective interest amortization schedule you originally printed out in requirement 3. Explain the similarity. c. Click the Chart sheet tab. The chart presented shows the price behavior of this bond based on years to maturity. Explain what effect years to maturity has on bond prices. Check your explanation by trying 8% as the effective rate (cell E10) and clicking the Chart sheet tab again. Also try 9%. When the assignment is complete, close the file without saving it again. Worksheet. Modify the BONDS3 worksheet to accommodate bonds with up to 20-year maturity. Use your new model to determine the issue price and amortization schedules of a 2,000,000, 18-year, 10% bond issued to yield 9%. Preview the printout to make sure that the worksheet will print neatly, and then print the worksheet. Save the completed file as BONDST. Hint: Expand both amortization schedules to 20 years. Expand the scratch pad to 20 years. Modify FORMULA1 in cell F17 to include the new ranges. Chart. Using the BONDS3 file, prepare a line chart that plots annual interest expense over the 10-year life of this bond under both the straight-line and effective interest methods. No Chart Data Table is needed. Put A23 to A32 in the Label format and then select A23 to A32, D23 to D32, and B40 to B49 as a collection. Enter all appropriate titles, legends, formats, and so forth. Enter your name somewhere on the chart. Save the file again as BONDS3. Print the chart.
Which of these two bonds offers the highest current yield? Which one has the highest yield to maturity? a. A 6.55 percent, 22-year bond quoted at 52.000 b. A 10.25 percent, 27-year bond quoted at 103.625
Describe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, 1,000 par value bond trading at a price of 850. Whats the current yield on this bond?
Current Yield with Semiannual Payments A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond’s current yield?
Default Risk Premium A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 7%. What is the percentage change in the price of each bond after the decline in interest rates? Assume annual coupons and annual compounding. Fill in the following table:
Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?