EBK CFIN
5th Edition
ISBN: 9781305888036
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 11, Problem 2PROB
Summary Introduction
YTM is the yield to maturity. It is the rate earned by the investor if he holds the bond till maturity.
Calculate the YTM by using the following formula:
Where,
M is the par value or face value,
INT is the dollar interest payment,
N is the number of years of interest payment.
NN products plan to issue new bonds. Interest payment is 5.6%, maturity 12 years, current price is $918 and another price $730. Compounding semiannual.
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- Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a 1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?arrow_forwardNeubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually and warrants attached. These bonds are currently trading for $1,000. Neubert also has outstanding $1,000 par value 15-year straight debt with a 7% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond?arrow_forward
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