Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual) Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Price increases by

Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual) Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Price increases by

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

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Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. a.What is the current price of the bonds? b.By what percentage will the price of the bonds increase between now and maturity? c. What is the annual compound rate of growth in the value of the bonds? (An approximate answer is acceptable.)
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below part value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. a. What is the current price of the bonds? b. By what percent will the price of the bonds increase between now and maturity? c. What is the annual compound rate of growth in the value of the bonds? (An approximate answer is acceptable.)
Mark Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 7.50%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.326% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.80% paid annually. a. The selling price for the Crabbe Waste Disposal bond is $____(Round to the nearest cent.) The selling price for the Malfoy Enterprises bond is $____(Round to the nearest cent.) b. The number of Crabbe Waste Disposal bond issues Mark could purchase is ____ issues. (Round down to the nearest whole number.) The number of Malfoy Enterprises bond issues Mark could purchase is ____ issues. (Round down to the nearest whole number.) c. The yearly interest income of the Crabbe Waste Disposal bond is $ (Round to the nearest cent.) The yearly interest income of the Malfoy Enterprises bond is $…
Mark Goldsmith’s broker has shown him two bonds issued by different companies. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 7.5%. The first bond is issued by Crabbe Waste Disposal Corporation and has a coupon rate of 6.324% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon rate of 8.8% paid annually. 1) Assume that Mark will reinvest all the interest he receives as it is paid, and his rate of return on reinvested interest will be 10%. Calculate the total dollars that Mark will accumulate over 5 years if he invests in Crabbe bonds or Malfoy bonds. Your total dollar calculation will include the interest Mark gets, the principal he receives when the bonds mature, and all the additional interest he earns from reinvesting the coupon payments that he receives.
Mark Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 6.80%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.317% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.90% paid annually. a. Calculate the selling price for each of the bonds. b. Mark has $19,000 to invest. If he wants to invest only in bonds issued by Crabbe WasteDisposal, how many of those bonds could he buy? What if he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could earn each year if he invested only in Crabbe bonds? How much interest would he earn each year if he invested only in Malfoy bonds? d. Assume that Mark will reinvest all the interest he receives as it is paid and that his rate of return on the reinvested interest will be 11%. Calculate the…
Mark Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 7.50%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.326% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.80% paid annually. If Mark invests in the Crabbe Waste Disposal bond, the value of the principal payment plus the value of his reinvestment account per bond is $_____ (Round to the nearest cent.) If Mark invests in the Malfoy Enterprises bond, the value of the principal payment plus the value of his reinvestment account per bond is $_____ (Round to the nearest cent.) Why are the two values calculated in part d different? Mark would be better off investing in which one?
Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,170. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 15 percent interest, and it has 18 years remaining until maturity. The current yield to maturity on similar bonds is 13 percent. Calculate the present value of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Assume interest payments are annual.)
Danno is trying to decide which of two bonds to buy. Bond H is a 10 percent coupon, 10-year maturity, R1,000 par, January 1, 2000 issue paying annual interest. Bond F is a 10 percent coupon, 10-year maturity, R1,000 par, January 1, 2000 issue paying semi-annual interest. The market required return for each bond is 10 percent. When using present value to determine the prices of the bonds, Danno will find that A. there is no difference in price. B. the price of F is greater than H. C. the price of H is greater than F. D. he needs more information before determining the prices.
Danno is trying to decide which of two bonds to buy. Bond H is a 10 percent coupon, 10-year maturity, R1,000 par, January 1, 2000 issue paying annual interest. Bond F is a 10 percent coupon, 10-year maturity, R1,000 par, January 1, 2000 issue paying semi-annual interest. The market required return for each bond is 10 percent. When using present value to determine the prices of the bonds, Danno will find that
Your company is planning to issue new bonds soon. Your boss gives you the following informationand asks you to calculate the interest rate at which to issue the bonds. Given this information, whatinterest rate do you recommend? Expected Inflation Rate: 3% Interest rate of similar corporations' (AAA rated) 30-year bonds: 6.5% Interest rate of 30 - Year Treasury Bonds: 5.38% Interest rate of 3 -month treasury bills: 4.89% Liquidity - risk premium: 0.03 Instruction: Type ONLY your numericalanswer in the unit of dollars, NO $ sign, NO comma, and round to two decimal places. E.g., if youranswer is $7, 001.56, should type ONLY the number 7001.56, NEITHER 7,001.6, $7001.6, $7,001.6,NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.
You are an investment manager evaluating two corporate bonds, each with a maturity value of $100,000. Each bond matures in exactly 10 years and each bond has a yield-to-maturity (YTM) of 5%. Bond 1 pays a coupon of 8% and Bond 2 pays a coupon of 3%. Without doing any math, which bond trades at a higher price? Which bond is more sensitive to changes in interest rates? If both bonds have the identical maturity date and YTM, then why do they trade at different prices? Is this a violation of The Law of One Price ? If you buy Bond 1, what is the NPV of the cash flows?