The yield to maturity on the bond.

Question

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Answer 1

Question

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

c)

Summary Introduction

To determine: The conversion value at the time of issue.

d)

Summary Introduction

To determine: The initial conversion price.

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

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The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31, 2008. Coupon payments are made semi-annually (on June 30 and December 31). What was the YTM of Pennington’s bonds on January 1, 1979? What was the price of the bond on January 1, 1984, 5 years later, if the level of interest rates had fallen to 10 percent? c. On July 1, 2002, Pennington’s bonds sold for $916.42. What was the YTM at that date?

The Pennington Corporation issued a new series of bonds on January 1, 1987. The bonds were sold at par ($1,000), had a 12% coupon, and matured in 30 years on December 31, 2016. Coupon payments are made semiannually (on June 30 and December 31). a. What was the YTM on the date the bonds were issued? b. What was the price of the bonds on January 1, 1992 (5 years later), assuming that interest rates had fallen to 10%? c. Find the current yield, capital gains yield, and total yield on January 1, 1992, given the price as determined in part b. d. On July 1, 2010 (6.5 years before maturity), Pennington’s bonds sold for $916.42. What are the YTM, the current yield, and the capital gains yield for that date? e. Now assume that you plan to purchase an outstanding Pennington bond on March 1, 2010, when the going rate of interest given its risk is 15.5%. How large a check must you write to complete the transaction? (Hint: Don’t forget the accrued interest.

The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par (P1,000), have a 12% coupon, and mature in 30 years on December 31, 2008. Coupon payments are made semiannually (on June 30 and December 31).(a) What was the YTM of Pennington’s bonds on January 1, 1979?(b) What was the price of the bond on January 1, 1984, 5 years later assuming that the level of interest rate had fallen to 10%?(c) Find the current yield and capital gains yield on the bond on January 1, 1984, given the price as determined in Question b.(d) On July 1, 2002, Pennington’s bonds sold for P916.42. What was the YTM at that date?(e) What were the current yield and capital gains yield on July 1, 2002

Answer 2

Question

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

c)

Summary Introduction

To determine: The conversion value at the time of issue.

d)

Summary Introduction

To determine: The initial conversion price.

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

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Answer 3

Question

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

c)

Summary Introduction

To determine: The conversion value at the time of issue.

d)

Summary Introduction

To determine: The initial conversion price.

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

Expert Solution & Answer

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Answer 4

Question

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

c)

Summary Introduction

To determine: The conversion value at the time of issue.

d)

Summary Introduction

To determine: The initial conversion price.

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

Expert Solution & Answer

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Answer 5

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

c)

Summary Introduction

To determine: The conversion value at the time of issue.

d)

Summary Introduction

To determine: The initial conversion price.

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

Answer 6

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

Answer 7

Chapter 24, Problem 25PS

a)

Summary Introduction

To determine: The yield to maturity on the bond.

Answer 8

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

Answer 9

b)

Summary Introduction

To determine: The amount need to pay by investors for the conversion option.

Answer 10

c)

Summary Introduction

To determine: The conversion value at the time of issue.

Answer 11

c)

Summary Introduction

To determine: The conversion value at the time of issue.

Answer 12

d)

Summary Introduction

To determine: The initial conversion price.

Answer 13

d)

Summary Introduction

To determine: The initial conversion price.

Answer 14

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

Answer 15

e)

Summary Introduction

To determine: The conversion price in 2005 and why did it change.

Answer 16

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

Answer 17

f)

Summary Introduction

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

Answer 18

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

Answer 19

g)

Summary Introduction

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

Answer 20

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Answer 21

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Answer 22

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Answer 23

Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PS Ch. 24 - Prob. 5PS Ch. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PS Ch. 24 - Prob. 8PS Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS

The yield to maturity on the bond.

Solution Summary: The author calculates the yield to maturity on the bond by solving the equation and determining the amount to pay by investors for the conversion option.

To determine: The yield to maturity on the bond.

To determine: The amount need to pay by investors for the conversion option.

To determine: The conversion value at the time of issue.

To determine: The initial conversion price.

To determine: The conversion price in 2005 and why did it change.

To determine: Whether the bond can be back to M if the bond price in 2006 was less than $810.36.

To determine: The price at which M have called the bonds in 2006 and if the price of bond in 2006 was higher than this, should M have called them.

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Chapter 24 Solutions