CFIN -STUDENT EDITION-W/ACCESS >CUSTOM<
6th Edition
ISBN: 9780357753118
Author: BESLEY
Publisher: CENGAGE C
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Chapter 6, Problem 19PROB
Summary Introduction
To calculate: Current
Introduction: Bond refers to the financial instruments that are issued to raise funds from the public for a fixed maturity period and a fixed interest rate is paid. The capital gain yield on the bond can be determined by subtracting the previous market price and the current market and dividing the arrived value by the previous market price of the bond.
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Eight years ago, Over-the-Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually). Today the going rate of interest on similar bonds is 6 percent. (a) What is the bond’s current value? If the market rate stays at 6 percent for the remainder of the bond’s life, what (b) current yield and (c) capital gains yield will bondholders receive during the next two years (i.e., Years 9 and 10)?
The Emory Corporation issued an 8%, 25-year bond 15 years ago. At the time of issue it sold for its par (face) value of $1,000. Comparable bonds are yielding 10% today. What must Emory’s bond sell for in today’s market to yield 10% (YTM) to the buyer? Assume the bond pays interest annually. Also calculate the bond’s current yield.
a) Suppose the bond was issued 20 years ago what price must it be sold for today and also calculate the bond’s current yield
b) Assume the bond was issued 5 years ago what price must it be sold for today and also calculate the bond’s current yield
As with most bonds, consider a bond with a face value
of $1,000. The bond's maturity is 5 years, the coupon
rate is 10% paid annually, and the market yield
(discount rate) is 14%.
What should be the estimated value of this bond in
one year? Assume the market yield remains
unchanged.
Enter your answer in terms of dollars and cents,
rounded to 2 decimals, and without the dollar sign.
That means, for example, that if your answer is
$127.5678, you must enter 127.57
X
Chapter 6 Solutions
CFIN -STUDENT EDITION-W/ACCESS >CUSTOM<
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- Gabby's Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond's life. Compute the (a) current yield ans (b) capital gains yield that the bond will generate in the third year (Year 3) of its life.arrow_forwardGabby’s Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond’s life. Compute the (a) current yield and (b) capital gains yield that the bond will generate in the third year (Year 3) of its life.arrow_forward5) Three years ago, you purchased a bond for $974.69. The bond had three years to maturity, a coupon rate of 8%, paid annually, and a face value of $1,000. Each year, you reinvested all coupon interest at the prevailing reinvestment rate shown in the table below. Today is the bond's maturity date. What is your realized compound yield on the bond? Time Prevailing Reinvestment Rate 0 (purchase date) 6.0 % 1 7.2 % 2 9.4 % 3 (maturity date) 8.2 % A) 6.43% B) 7.96% C) 8.23% D) 8.97% E) 9.13% Provide an accurate answer with justification.arrow_forward
- Oriole, Inc., has bonds outstanding that will mature in eight years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $883.92, what is the yield to maturity that an investor who buys them today can expect to earn? Yield to maturity? What is the effective annual yield?arrow_forwardSuppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7.1% (annual payments). The yield to maturity on this bond when it was issued was 6.4%. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? After the first coupon payment, the price of the bond will be $. (Round to the nearest cent.)arrow_forwardA company has decided to issue bonds with annual coupon payments. The bonds will have a par value of $1,000, 20 years to maturity, and a coupon rate of 9.6 percent paid annually. If the bond's yield to maturity is 8.3 percent, what is the price of the bond?arrow_forward
- Four years ago, Vulcan Ltd. issued a 20-year $1000 par value bond that pays $40 semi-annual coupon payments. The annual required rate of return on these bonds today is 10 percent. a)Is this bond currently sell at par, discount or premium? Why? b)Normally, whether the yield to maturity (YTM) is expressed as annual percentage rate (APR) or effective annual rate (EAR)? c)What is the current bond price?arrow_forwardCarries Clothes, Inc. has a five -year bond outstanding that pays $60 annually. The face value of each bond is $1,000, and the bond sells for $890. Use semi- annual interest payments if it applies. What is the bond’s coupon rate? What is the current yield? What is the yield to maturity?arrow_forwardA 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent? Please show how I can solve this in Excel, thank you.arrow_forward
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