Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 25QP
Summary Introduction
To determine: The yield to maturity and the current yield.
Introduction:
Yields refer to the return on the investment made by an investor.
A bond yield refers to the return earned by the investor on the bond, if he or she holds the bond until the bond matures. It is also known as the yield to maturity.
The current yield of the bond is the annual coupon of the bond divided by the price of the bond.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2018.
Company (Ticker)
Coupon
Maturity
Last Price
Last Yield
EST Vol (000s)
IOU (IOU)
6.3
Apr 19, 2034
112.97
??
1,857
a.
What is the yield to maturity of the bond?
This question is not incomplete...Where it asks, if you were to calculate....the answer choices are in ()
10. Bond listings and yield spreads
The following bond list is from the business section of a financial newspaper on January 1, 2016. Assume that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon and the coupon rate is in the column labeled Coupon.
The Last Price and Last Yield columns indicate each bond’s price and YTM at the end of trading. EST Spread indicates the bond’s spread above the relevant US Treasury benchmark, expressed as a percentage. UST indicates which US Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Notice also that prices are stated relative to a par value of $100. Assume all bonds have the same default premium.
Fill in the value of Powell Co.’s bonds.
Company
Coupon
Maturity
Last Price
Last Yield
EST Spread…
Calculate the market price of each bond on 23rd April 2021 that issued by AAA Ltd., using the data provided in the table below. What is the current total value of minimum application? Time to Maturity U.S. Treasury Bond Yield 1 Yr 0.12% 2 Yr 0.14% 3 Yr 0.20% 4 Yr 0.25% 5 Yr 0.27% 7 Yr 0.46% 10 Yr 0.67%
Corporate Bonds Fact Sheet Issuer AAA Company Ltd. Issuing date 23rd April 2021 Bond expiration date 25th April 2025 Face value $ 1000 per bond. Minimum application 50 Bonds ($ 50,000) Interest rate Floating Interest Rate. The Interest Rate is the sum of the Market Rate plus the Margin. Coupon rate (annual) Central Government Bond Yield + 1.86% p.a. Coupon payment Annually (coupon payment is paid on 10th July every year) Market Yield 4.00%
Chapter 6 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 6.1 - What are the cash flows associated with a bond?Ch. 6.1 - What is the general expression for the value of a...Ch. 6.1 - Is it true that the only risk associated with...Ch. 6.2 - Prob. 6.2ACQCh. 6.2 - Prob. 6.2BCQCh. 6.2 - Prob. 6.2CCQCh. 6.3 - What is a junk bond?Ch. 6.3 - What does a bond rating say about the risk of...Ch. 6.4 - Prob. 6.4ACQCh. 6.4 - What do you think would be the effect of a put...
Ch. 6.5 - Prob. 6.5ACQCh. 6.5 - Prob. 6.5BCQCh. 6.5 - Prob. 6.5CCQCh. 6.6 - Prob. 6.6ACQCh. 6.6 - Prob. 6.6BCQCh. 6.7 - What is the term structure of interest rates? What...Ch. 6.7 - Prob. 6.7BCQCh. 6.7 - What are the six components that make up a bonds...Ch. 6 - Section 6.1What is the coupon rate on a bond that...Ch. 6 - Section 6.2What is the provision in the bond...Ch. 6 - Section 6.3Do bond ratings consider default risk?Ch. 6 - Section 6.4What are the features of municipal...Ch. 6 - Prob. 6.5CCh. 6 - Prob. 6.6CCh. 6 - Prob. 6.7CCh. 6 - Prob. 1CTCRCh. 6 - Prob. 2CTCRCh. 6 - Prob. 3CTCRCh. 6 - Prob. 4CTCRCh. 6 - Prob. 5CTCRCh. 6 - Prob. 6CTCRCh. 6 - Prob. 7CTCRCh. 6 - Prob. 8CTCRCh. 6 - LO3 6.9Bond Ratings. Often, junk bonds are not...Ch. 6 - Crossover Bonds. Looking back at the crossover...Ch. 6 - Municipal Bonds. Why is it that municipal bonds...Ch. 6 - Treasury Market. All Treasury bonds are relatively...Ch. 6 - Prob. 13CTCRCh. 6 - Prob. 14CTCRCh. 6 - Prob. 15CTCRCh. 6 - Prob. 1QPCh. 6 - Interpreting Bond Yields. Suppose you buy a 7...Ch. 6 - Bond Prices. Lycan, Inc., has 7 percent coupon...Ch. 6 - Bond Yields. The Timberlake-Jackson Wardrobe Co....Ch. 6 - Prob. 5QPCh. 6 - Bond Prices. Harrison Co. issued 15-year bonds one...Ch. 6 - Prob. 7QPCh. 6 - Coupon Rates. Volbeat Corporation has bonds on the...Ch. 6 - Prob. 9QPCh. 6 - Prob. 10QPCh. 6 - Nominal and Real Returns. An investment offers a...Ch. 6 - Prob. 12QPCh. 6 - LO2 13PRINTED BY: V.SwathiPpreya@spi-global.com....Ch. 6 - Prob. 14QPCh. 6 - Prob. 15QPCh. 6 - Prob. 16QPCh. 6 - Valuing Bonds. Union Local School District has...Ch. 6 - Bond Price Movements. Bond X is a premium bond...Ch. 6 - LO2 19Interest Rate Risk. Both Bond Bill and Bond...Ch. 6 - Interest Rate Risk. Bond J has a coupon rate of 4...Ch. 6 - Bond Yields. PK Software has 6.3 percent coupon...Ch. 6 - Bond Yields. BDJ Co. wants to issue new 25-year...Ch. 6 - Prob. 23QPCh. 6 - Accrued Interest. You purchase a bond with a...Ch. 6 - Prob. 25QPCh. 6 - Prob. 26QPCh. 6 - Finding the Maturity. Youve just found a 10...Ch. 6 - Prob. 28QPCh. 6 - Prob. 29QPCh. 6 - Prob. 30QPCh. 6 - Prob. 31QPCh. 6 - Prob. 32QPCh. 6 - Prob. 33QPCh. 6 - Prob. 34QPCh. 6 - Prob. 35QPCh. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...Ch. 6 - Financing SS Airs Expansion Plans with a Bond...
Knowledge Booster
Similar questions
- Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?arrow_forwardDescribe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, 1,000 par value bond trading at a price of 850. Whats the current yield on this bond?arrow_forwardThe following bond list is from the business section of a newspaper on January 1, 2016. Notice that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon and the coupon rate is in the column labeled Coupon. The Last Price and Last Yield columns indicate each bond’s price and YTM at the end of trading. EST Spread indicates the bond’s spread above the relevant US Treasury benchmark, given as a percentage. UST indicates which US Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Prices are stated relative to a par value of $100. Fill in the nominal YTM for Pickman Inc.’s bonds. (Note: Do not round your intermediate calculations.) Company Coupon Maturity Last Price Last Yield EST Spread UST (Years) EST Volume (1000s) Schubert Inc. 8.13% 01-01-2026 $82.25 11.11% 6.20% 10 72,070 Chapman Inc. 9.63% 01-01-2046 $77.11 12.58% 7.15% 30 65,275…arrow_forward
- An investor gathers the following data on three newly-issued bonds: 1-year government bond, 3.0% yield 1-year ABC corporate bond, 4.2% yield 10-year government bond, 3.8% yield If investors require a 0.5% liquidity premium for corporate bonds, what are the components of the required return on a 10-year ABC bond?arrow_forwardOn January 1, 2021, a company issued an 8-year bond with a coupon rate of 15% and a par value of $ 1,750 that pays annual interest.Calculate the value of the bond based on the information provided with a required yield of 14%.According to the information obtained, is the bond sold at a discount or with a guarantee premium, and what is that value?arrow_forwardSuppose the following bond quotes for IOU Corp appear in the financial page of today’s newspapers. Assume the bond has a face value of $2000 and the current date is April 19,2021. What is the yield to maturity of the bond? What is the current yield? IOU -- COUPON 5.7 -- MATURITY 04/19/2043 -- LAST PRICE 108.96 -- LAST YIELD?? -- EST Vol (000s) 1,827arrow_forward
- You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2019. The bonds have a par value of $2,000 and semiannual coupons. Company(Ticker) Coupon Maturity LastPrice LastYield EST $ Vol(000’s) Xenon, Inc. (XIC) 6.600 Jan 15, 2035 94.303 ?? 57,374 Kenny Corp. (KCC) 7.240 Jan 15, 2034 ?? 5.38 48,953 Williams Co. (WICO) ?? Jan 15, 2041 94.855 7.08 43,814 a. What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardAssume that today is November 15, 2016 and there are exactly 4 six-month time periods remaining until maturity for a 30-year US Treasury bond that was originally issued on November 15, 1988. The bond matures on November 15, 2018. The bond’s coupon is 8.50%. Coupons are paid semi-annually. The yield to maturity is 0.67%. The bond’s principal is $1,000. Using the PVA formula, what is the current price of the bond? Begin with the general formula. Show all your work. Is the bond priced at a premium, discount, or at par? And, why? Explainarrow_forwardA bond issued on February 1, 2004 with face value of $15200 has semiannual coupons of 4.5%, and can be redeemed for par (face value) on February 1, 2019. What is the accrued interest and the market price (the “clean” price) of the bond on November 15, 2006, if the bond’s yield on that date is to be 7.5%? (use actual/actual for accrued interest).arrow_forward
- In January 2016, Anheuser-Busch issued an outstanding bond that pays a 3.4% coupon rate, matures in January 2023, and has a yield to maturity of 2.92%. In January 2017, Santander Holdings issued an outstanding bond that pays a 3.574% coupon rate, matures in January 2023, and has a yield to maturity of 3.344%. a. Does the Anheuser-Busch bond sell at a premium, at par, or at a discount? How do you know? What about the Santander bond? b. Which bond would you guess has a higher rating? Why? c. Can you draw any conclusion about the shape of the yield curve, either now or when these bonds were first issued, from the information given in the problem? Why or why not?arrow_forwardYou find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15 , 2022. The bonds have a par value of $2,000 and semiannual coupons. \table[[Company (Ticker),Coupon,Maturity,Last Price,Last Yield,\table[[Estimated],[$ Volume],[(000s)]]],[Xenon, Incorporated (XIC),6.60,January 15, 2045,94.327,??,57,374],[Kenny Corporation (KCC),7.24,January 15, 2039,??,6.26,48,953],[Williams Company (WIC0),??,January 15, 2041,94.855,7.08,43,814]] What is the yield to maturity for the bond issued by Xenon, Incorporated? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Yield to maturityarrow_forwardTreasury notes and bonds. Use the information in the following table: . Assume a $100,000 par value. What is the yield to maturity of the August 2000 Treasury bond with semiannual payment? Compare the yield to maturity and the current yield . How do you explain this relationship? What is the yield to maturity of the August 2000 Treasury bond?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College