EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 6, Problem 31P

a.

Summary Introduction

To determine: The price of the bond with AA rating.

Introduction:

Bond rating is a credit rating which represents the creditworthiness of the both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

b.

Summary Introduction

To determine: The principal amount of the bond.

Introduction:

Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

c.

Summary Introduction

To determine: What the rating of the bond must be to sell at par.

Introduction:

Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

d.

Summary Introduction

To determine: The rating of the bond and to analyze if that bond is junk.

Introduction:

Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.

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HMK Enterprises would like to raise $10.0 million to invest in capital expenditures. The company plans to issue​ five-year bonds with a face value of $1,000 and a coupon rate of 6.59% ​(annual payments). The following table summarizes the yield to maturity for​ five-year (annual-payment) coupon corporate bonds of various​ ratings:   Rating AAA AA A BBB BB YTM 6.19​% 6.36​% 6.59​% 6.96​% 7.54​%   a. Assuming the bonds will be rated​ AA, what will be the price of the​ bonds? b. How much of the total principal amount of these bonds must HMK issue to raise $10.0 million​ today, assuming the bonds are AA​ rated? (Because HMK cannot issue a fraction of a​ bond, assume that all fractions are rounded to the nearest whole​ number.) c. What must be the rating of the bonds for them to sell at​ par? d. Suppose that when the bonds are​ issued, the price of each bond is $961.60. What is the likely rating of the​ bonds? Are they junk​ bonds?
AAA company plans to issue bonds to expand operations. The bonds will have a par value of $1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net $937.79. What is the yield-to-maturity of these bonds?
Assets, Ic., plans to issue $6 million of bonds with a coupon rate of 11 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 8 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk- neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds b. If the bonds are callable one year from today at $1,060, will their price be greater or less than the price you computed in part (a)? O Greater O Lesser

Chapter 6 Solutions

EBK CORPORATE FINANCE

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Bond Valuation - A Quick Review; Author: Pat Obi;https://www.youtube.com/watch?v=xDWTPmqcWW4;License: Standard Youtube License