On November 1, 2012, Anderson Corp. sold a $500 million bond issue to finance the purchase of a new factory. These bonds were issued in $1,000 denominations with a maturity date of November 1, 2032. The bonds have a coupon rate of 12.00% with interest paid semiannually. Required:Determine the value today, November 1, 2022 of one of these bonds to an investor who requires a 8 percent return on these bonds. Why is the value today different from the par value?Assume that the bonds are selling for $950.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean.Explain what layers or textures of risk play a role in the determination of the required rate of return on Anderson’s bonds.

Given The Face value of bond $1000 Coupon rate is 12%

Answered: On November 1, 2012, Anderson Corp.…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 3P

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On November 1, 2012, Anderson Corp. sold a $500 million bond issue to finance the purchase of a new factory. These bonds were issued in $1,000 denominations with a maturity date of November 1, 2032. The bonds have a coupon rate of 12.00% with interest paid semiannually.

Required:

Determine the value today, November 1, 2022 of one of these bonds to an investor who requires a 8 percent return on these bonds. Why is the value today different from the par value?
Assume that the bonds are selling for $950.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean.
Explain what layers or textures of risk play a role in the determination of the required rate of return on Anderson’s bonds.

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