EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 5, Problem 17QP
Summary Introduction
To determine: The rate of interest offered by the bond.
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Students have asked these similar questions
A one-year zero coupon bond costs $99.43 today.
Exactly one year from today, it will pay $100.
What is the annual yield-to-maturity of the bond?
(1.e., what is the discount rate one needs to use to
get the price of the bond given the future cash flow
of $100 in one year?)
1.0057
0.0057
2.0057
-0.0057
4. Suppose the U.S. Federal Reserve offers a bond for $635.20 at 8 years to maturity. You will not have to issue payments until the maturity date, at which time you will receive $950. Calculate the interest rate if you decide to buy it. Determine the interest rate if you manage to buy it at a price of $555.
Suppose a State of Califomla bond will pay 1,000 eight years from now. If the going interest rate on these 8 year bonds is 6.0% how much is the bond worth today?
Chapter 5 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
Ch. 5 - Prob. 1QPCh. 5 - Compound Interest. New Savings Bank pays 4%...Ch. 5 - Prob. 3QPCh. 5 - Prob. 4QPCh. 5 - Future Values. You deposit $1,000 in your bank...Ch. 5 - Future Values. If you earn 6% per year on your...Ch. 5 - Future Values. In 1880 five aboriginal trackers...Ch. 5 - Prob. 8QPCh. 5 - Prob. 9QPCh. 5 - Prob. 10QP
Ch. 5 - Prob. 11QPCh. 5 - Present Values. Compute the present value of a...Ch. 5 - Present Values. You will require $700 in 5 years....Ch. 5 - Prob. 14QPCh. 5 - Prob. 15QPCh. 5 - Prob. 16QPCh. 5 - Prob. 17QPCh. 5 - Prob. 18QPCh. 5 - Prob. 19QPCh. 5 - Prob. 20QPCh. 5 - Prob. 21QPCh. 5 - Perpetuities. A local bank advertises the...Ch. 5 - Prob. 23QPCh. 5 - Prob. 24QPCh. 5 - Perpetuities. British government 4% perpetuities...Ch. 5 - Prob. 26QPCh. 5 - Prob. 27QPCh. 5 - Prob. 28QPCh. 5 - Annuities. You can buy a car that is advertised...Ch. 5 - Prob. 30QPCh. 5 - Future Value of Annuities. I now have $20,000 in...Ch. 5 - Prob. 32QPCh. 5 - Prob. 33QPCh. 5 - Prob. 34QPCh. 5 - Annuity Due. Recall that an annuity due is like an...Ch. 5 - Prob. 36QPCh. 5 - Prob. 37QPCh. 5 - Annuity Due. The $40 million lottery payment that...Ch. 5 - Prob. 39QPCh. 5 - Prob. 40QPCh. 5 - Retirement Savings. A couple will retire in 50...Ch. 5 - Retirement Savings. You believe you will need to...Ch. 5 - Prob. 43QPCh. 5 - Retirement Savings. You believe you will spend...Ch. 5 - Retirement Savings. A couple thinking about...Ch. 5 - Perpetuities and Effective Interest Rate. What is...Ch. 5 - Amortizing Loans and Inflation. Suppose you take...Ch. 5 - Mortgage with Points. Home loans often involve...Ch. 5 - Prob. 49QPCh. 5 - Effective Interest Rate. You’ve borrowed $4,248.68...Ch. 5 - Prob. 51QPCh. 5 - Effective Interest Rate. If a bank pays 6%...Ch. 5 - Effective Interest Rate. In a discount interest...Ch. 5 - Effective Interest Rate. Banks sometimes quote...Ch. 5 - Prob. 55QPCh. 5 - Prob. 56QPCh. 5 - Prob. 57QPCh. 5 - Prob. 58QPCh. 5 - Effective Interest Rate. Find the effective annual...Ch. 5 - Prob. 60QPCh. 5 - Prob. 61QPCh. 5 - Prob. 62QPCh. 5 - Effective Interest Rate. If you take out an $8,000...Ch. 5 - Real versus Nominal Perpetuities. If the interest...Ch. 5 - Prob. 66QPCh. 5 - Real versus Nominal Dollars. Your consulting firm...Ch. 5 - Real versus Nominal Rates. If investors are to...Ch. 5 - Real versus Nominal Rates. If investors receive a...Ch. 5 - Real versus Nominal Annuities. Good news: You will...Ch. 5 - Prob. 71QPCh. 5 - Prob. 72QPCh. 5 - Retirement and Inflation. A couple will retire in...Ch. 5 - Real versus Nominal Rates. You will receive $100...
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- Suppose that a short-term government bond has a face value of $100. If the price of that bond is $95. What is the insterest rate of that bond? 5.3% 9.0% 10.0% 1.0%arrow_forwardConsider a bond paying a coupon rate of 10% per year semi-annually when the market interest rate is only 4% per half-year. The bond has three years until maturity. This initial payment is $1000. A: What is find the bond’s price today and 6 months time after the next coupon is paid? B: What is the total rate of return on the bond?arrow_forwardSuppose a pure discount State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 3.5%, how much is the bond worth today?arrow_forward
- Suppose the current interest rate on a one-year bond is 2% and the current interest rate on a two-year bond is 4%. The term premium on a two-year bond is 1%. According to the expectations hypothesis, what interest rate should we expect on a one-year bond next year? Answer as a percentage to one decimal place and do not include symbols (e.g. $, %, commas) in your answer. Answer:arrow_forwardA 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.arrow_forward(b)You purchase the $110 bond today and sell it off next year at $108. What is its one-year rate of return (assume the bond’s coupon rate is 5% and its face value is $100)? If the expected inflation over the course of the year is 2%, what would the ex-ante real rate of return be for the bond on part (b)?arrow_forward
- According to the expectations theory of the term structure of interest, if the 1-year bond rate today is 6.50% p.a., the 2-year bond rate today is 6.70% p.a., and the 3-year bond rate today is 7.00%, what will be the 2-year bond rate next year?arrow_forwardA bond has a $1,000 face value, a market price of $1,045, and pays interest payments of $74.50 every year. What is the coupon rate?arrow_forward1) Suppose that today's one-year interest rate is 5%. Consider the following one-year interest rates expected to occur over the next four years: 6%, 7%, 8% and 9%.a. Calculate the interest rate for two-year bonds, based on the expectations theory.b. What about five-year bonds?arrow_forward
- Suppose that you purchase a bond from a company that promises to pay $52.66 in coupon payments for the next 6 years, with a maturity bonus of $152.05 What is the total amount of money that this bond will pay out over its Motime? Round your answer to two (2) decimal places if necessary and do not include a dollar sign Plz do fastarrow_forwardBond A pays Rs. 80,000 in 20 years. Bond B pays Rs. 80,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the Rs80,000 is the only payment the bond holder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: “The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.”arrow_forwardBond Pricing. A six-year Circular File bond with face value$1,000pays interest once a year of$80and sells for$950. a. What is its coupon rate? b. What is its yield to maturity? c. If Circular wants to issue a new six-year bond at face value, what coupon rate must the bond offer?arrow_forward
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