Ee 364. Problem 16-18Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investment Committee, Fred Spice,is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions.Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have semiannualcoupon periods. Unless otherwise stated, all interest rate changes are parallel. The characteristics of these securities are shown in thefollowing table. He also considers a 9-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding5%.Characteristics of Fixed-Rate Bond and Fixed-Rate NoteFixed-RateNoteFixed-RateBond107.185.00%186.9848100.005.00%PriceYield to maturityTime to maturity (years)Modified duration (years)83.5851Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for thefixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the informationin the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign.Round your answer to 2 decimal places.)Predicted price change

Modified duration measures the sensitivity of bond prices to the change in yield. The change in…

Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the fixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the information in the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Predicted price change

Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the fixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the information in the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Predicted price change

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter12: Long-Term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 12.1CP

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Question 3AN 8% corporate bond is due in 10 years.Required:a) Calculate the price of the bond if the nominal yield to maturity is 12% p.a. using the factor formula (Note that the bond pays the coupons semiannually and has a face value equal to $5,000).b) Explain what is meant by the term ‘bond ratings’ and give examples from real life.
Problem 13-08 Bond A has the following terms: Coupon rate of interest (paid annually): 8 percent Principal: $1,000 Term to maturity: Ten years Bond B has the following terms: Coupon rate of interest (paid annually): 4 percent Principal: $1,000 Term to maturity: Ten years What should be the price of each bond if interest rate is 8 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after four years have elapsed, interest rate is 8 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after ten years have elapsed, interest rate is 5 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.
Problem 3: Callable Bonds: On Jan. 1, 2021, Z Corporation paid P3,300,000 for a 9%, P3,000,000 face value bond. The bond pays interest every June 30 and Dec. 31, and is due on Dec. 31, 2028. However, Z foresees that the issuer will likely call the bonds on Dec. 31, 2026 for a call price of 103. As a financial analyst, you deem it appropriate to use a risk-adjusted return of 11% for Z’s investment. Based on your analysis, how much did Z overpay or (underpay) for its investment?
Problem 13-02 A $1,000 bond has a 4.5 percent coupon and matures after ten years. If current interest rates are 8 percent, what should be the price of the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ If after five years interest rates are still 8 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar. $ Even though interest rates did not change in a and b, why did the price of the bond change? The price of the bond with the longer term is than the price of the bond with the shorter term as the investors will collect the interest payments and receive the principal within a longer period of time. Change the interest rate in a and b to 2 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the…
QUESTION 38 ABC Inc. plans to issue $500,000 face value bonds with a stated interest rate of 10% and market interest rate of 12%. They will mature in 10 years. Interest will be paid semiannually. At the date of issuance, compute the present value (bond issue price) of the future cash flows. Following are appropriate factors from tables: Table % / n Present Value of $1 Present Value of ordinary annuity of $1 10%/10 .38554 6.14457 12%/10 .32197 5.65022 5%/20 .37689 12.46221 6%/20 .31180 11.46992 $286,748 $155,900 $442,648 $467,455.25
hapter 12Financial Planning Exercise 15Calculating current yield and return on investment Assume that an investor pays $900 for a long-term bond that carries a 9% coupon. During the next 12 months, interest rates drop sharply, and the investor sells the bond at a price of $962.50. Assume that bond's par value is $1,000 and use annual compounding of interest. Find the current yield that existed on this bond at the beginning of the year. Round the answer to two decimal places. % What was it by the end of the 1-year holding period? Round the answer to two decimal places. % Compute the return on this investment using the approximate yield formula and a 1-year investment period. Do not round intermediate calculations. Round the answer to two decimal places. %
Question 4A H&M is looking for financial investment in the securities market. Two investment options are available in different securities: Bonds and ordinary shares. ABC Corporate bond: the bond is paying 13% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 and will mature 12 years from now. XYZ ordinary share: The company Management plans to pay a dividend of $8.50 per share next year and estimated steady growth of 3% in dividends over the foreseeable future. The required rate of return for shares of this type is 15%. Required: Compute the current value of the ABC Corporate bond if the YTM of the bond is 11.5% annually
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(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 12 percent interest annually and have 11 years until maturity. You can purchase the bond for $945. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 14 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%. (Round to two decimal places.)
Question 24 Calculate the bond equivalent yield and effective annual return on fed funds that are 5 days from maturity and have a quoted redd of 031 percent. (Note: Do not round intermediate calculations. However, round your answers to 4 decimal places) 0.4210%;0.4569% 0.1431%;0.1439% 0.3143%;0.3148% 3.1400%;3.1481%
eBook Chapter 12Financial Planning Exercise 8Calculating and interpreting current yield and yield to maturity Describe and differentiate between a bond's (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 15-year, 11%, $1,000 par value semiannual bond trading at a price of $850. What's the current yield on this bond? Round the answers to two decimal places. Yield to maturity % Current yield %