The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.YearOne-Year BondRateMultlyear Bond Rate12.00%2.00%25.00%5.00%6.00%7.00%7.00%9.00%9.00%11.00%The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places)111 =121=ly=141. =151135%

Data given: Year One Year Bond Rate Multiyear Bond Rate 1 2.00% 2.00% 2 5.00% 5.00% 3 6.00%…

The table below shows current and expected future one-year interest rates, as well as current interest rates on mutiyear bonds. Use the table to calculate the liquidity premium for each muttyear bond Year One-Year Bond Rate Multyear Bond Rate 1 2.00% 2.00% 5.00% 6.00% 6.00% 7.00% 7.00% 9.00% 9.00% 11,00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places) /11 101 = b= les - 1 BOU BE ****

The table below shows current and expected future one-year interest rates, as well as current interest rates on mutiyear bonds. Use the table to calculate the liquidity premium for each muttyear bond Year One-Year Bond Rate Multyear Bond Rate 1 2.00% 2.00% 5.00% 6.00% 6.00% 7.00% 7.00% 9.00% 9.00% 11,00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places) /11 101 = b= les - 1 BOU BE ****

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 2EP

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Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
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
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A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?
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.
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