For all problems assume that the interest rate is 12%•What is the future value in year 11 of an annuity whichpays $10,000 per year beginning in year one andending in year 11?•What is the yield of a bond whose current price is$1,049 with a coupon rate of 6% and a maturity of 12years?

Future Value of Annuity: The future value of annuity due refers to the future value of a series of…

Answered: For all problems assume that the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 17P

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Current Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
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For all problems assume that the interest rate is 12% •What is the future value in year 11 of an annuity which pays $10,000 per year beginning in year one and ending in year 11? •What is the yield of a bond whose current price is $1,049 with a coupon rate of 6% and a maturity of 12 years?