Westco Company issued 11-year bonds a year ago at a coupon rate of 8.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 7.2 percent, what is the current bond price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Westco Company issued 11-year bonds a year ago at a coupon rate of 8.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 7.2 percent, what is the current bond price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Problem 6-3 Bond Prices [LO 2] Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 7 years to maturity, and a coupon rate of 8.8 percent paid annually. If the YTM is 10.8 percent, what is the current bond price in euros?
Problem 6-32 Credit Risk (LO4) a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.4%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 12%. What is the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 82% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
INV problem 3 question 3 The spot rate for the first year, the forward rate for the second year, and the forward rate for third year are 5.2%, 5.4%, and 5.5%, respectively. A corporate bond has a $1000 face value, 3 years to maturity, and a 5% annual coupon. This bond is retractable (puttable) only at two times: at the end of year 1 for $975, and at the end of year 2 for $990. These bonds trade at a 2% yield spread to the stated term structure, and issue costs are minimal and can be ignored. Applying the PEH, when, if ever, would you expect the bondholders to put the bond back to the corporation?
P6–23 Bond valuation and yield to maturity 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. A. Calculate the selling price for each bond. B. Mark has $20,000 to invest. If he wants to invest only in bonds issued by Crabbe Waste Disposal, how many of those bonds could he buy? What if he wants to invest only in bonds issued by Malfoy Enterprises? Round your answers to the nearest integer. 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?
P6–23 Bond valuation and yield to maturity 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. D. 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. E. The bonds issued by Crabbe and Malfoy might appear to be equally good investments because they offer the same yield to…
Problem 3 Linz Styles Coupon Rate (RWJJ Ch. 20, Q5) Linz Stylers intends to issue perpetual callable bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 11 percent. There is a 60 percent probability that long-term interest rates one year from today will be 13 percent, and a 40 percent probability that long-term interest rates will be 9 percent or even lower. Assume that if interest rates fall, the fall will be sufficient for the bonds to be called. What coupon rate should the bonds have in order to sell at par value?
Question 3 A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90. Zero-coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820, respectively. Is this coupon bond properly priced? If not, show an arbitrage transaction to profit $2000 (today) from the mispricing.
8.4. Coupon Rates Rhiannon Corporation has bonds on the market with 11.5 years to maturity, a YTM of 6.8 percent, a par value of $1,000, and a current price of $1,055. The bonds make semiannual payments. What must the coupon rate be on these bonds?
9.27 Debt Valuation: Zero-Coupon Debentures. At the beginning of the year, Park Inc. issued $150 million (maturity value) of 10-year, zero-coupon debentures, at a time when the yield rate was four percent annually. The Park, Inc. bonds would be subject to semiannual compounding. Required1. Calculate the proceeds to be received by Park Inc. when the bonds are sold. 2. Calculate the cost to repurchase and retire the bonds after five years assuming that the market yield rate at that time is five percent annually. Is the early retirement of debt a good decision in this set of circumstances? What factors did you consider in reaching your decision? 3. Under what circumstances would a company consider issuing zero-coupon debentures instead of regular interest-bearing debentures?
Problem 6-10 Liquidity Premium Theory (LG6-7) One-year Treasury bills currently earn 3.10 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.30 percent and that two years from now, 1-year Treasury bill rates will increase to 3.80 percent. The liquidity premium on 2-year securities is 0.15 percent and on 3-year securities is 0.25 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Question 8 Ch. 13. For questions 7, 8, and 9, use the following information: 7.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX" 5.53 8.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the pretax cost of debt…
Problem 6-19 Interest Rate Risk (LO3) Consider three bonds with 5.10% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years. need last 2

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