Consider the following newly issued bonds: InputsJuan Rojo, Incorporated 10-Year BondMcAllister Avionics 9-Year Bond Settlement Date01-01-202001-01-2020 Maturity Date01-01-203001-01-2029 Coupon Rate0.0800.050 Redemption Value100100 Coupons per Year 21 Market Data Initial Yield0.075 Yield Change0.010 Required: Using any necessary data above, calculate the Price, the Macaulay Duration and the Modified Duration for each bond. Then, predict the price change given a change in the prevailing yield. Then, assume the market yield changed, as described below. In the second table, calculate the approximate price change and new price according to duration (the first-order approximation). (Use cells A5 to C13 from the given information to complete this question.) Juan Rojo, Incorporated 10-Year BondMcAllister Avionics 9-Year Bond Initial Price103.4784.05 Macaulay Duration7.127.30 Modified Duration6.876.79 First-Order Approximation, Price ChangeJuan Rojo, Incorporated 10-Year BondMcAllister Avionics 9-Year Bond Price Change New Price

When yield changes, the price of the bond also changes in the opposite direction. The relationship…

Answered: Price Change New Price

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 24E

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Similar questions

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?
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
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.
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?
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?
Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?

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Consider the following newly issued bonds:

Inputs	Juan Rojo, Incorporated 10-Year Bond	McAllister Avionics 9-Year Bond
Settlement Date	01-01-2020	01-01-2020
Maturity Date	01-01-2030	01-01-2029
Coupon Rate	0.080	0.050
Redemption Value	100	100
Coupons per Year	2	1

Market Data
Initial Yield	0.075
Yield Change	0.010

Required:
Using any necessary data above, calculate the Price, the Macaulay Duration and the Modified Duration for each bond. Then, predict the price change given a change in the prevailing yield. Then, assume the market yield changed, as described below. In the second table, calculate the approximate price change and new price according to duration (the first-order approximation).

(Use cells A5 to C13 from the given information to complete this question.)

	Juan Rojo, Incorporated 10-Year Bond	McAllister Avionics 9-Year Bond
Initial Price	103.47	84.05
Macaulay Duration	7.12	7.30
Modified Duration	6.87	6.79

First-Order Approximation, Price Change	Juan Rojo, Incorporated 10-Year Bond	McAllister Avionics 9-Year Bond
Price Change
New Price