FUND OF CORP FIN >CUSTOM<
11th Edition
ISBN: 9781308616384
Author: Ross
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 11QP
Valuing Bonds [LO2] Union Local School District has a bond outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 3.9 percent, and the bond has a par value of $5,000. What is 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
15.8 Valuing Callable Bonds Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral.
If the bonds are noncallable, what is the price of the bonds today?
If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why?
Question 1
2.BT is considering investing in government bonds. The current price of a P100 bond with 10 years to maturity is P88.The bonds have a coupon rate of 6% and repay face value of P100 at the end of the 10 years.Calculate the yield to maturity.
3.Explain four comparative advantages of debt as a source of finance over equity.
3. Bond Prices (LO2) Malahat Inc. has 7.5% coupon bonds on the market that have ten years left to maturity. the bond make annual payments. If the YTM on these bonds is 8.75%, what is the current bond price?
Chapter 7 Solutions
FUND OF CORP FIN >CUSTOM<
Ch. 7.1 - What are the cash flows associated with a bond?Ch. 7.1 - What is the general expression for the value of a...Ch. 7.1 - Is it true that the only risk associated with...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Prob. 7.2CCQCh. 7.3 - What does a bond rating say about the risk of...Ch. 7.3 - What is a junk bond?Ch. 7.4 - Prob. 7.4ACQCh. 7.4 - What do you think would be the effect of a put...
Ch. 7.5 - Why do we say bond markets may have little or no...Ch. 7.5 - Prob. 7.5BCQCh. 7.5 - What is the difference between a bonds clean price...Ch. 7.6 - What is the difference between a nominal and a...Ch. 7.6 - What is the Fisher effect?Ch. 7.7 - What is the term structure of interest rates? What...Ch. 7.7 - What is the Treasury yield curve?Ch. 7.7 - What six components make up a bonds yield?Ch. 7 - Prob. 7.1CTFCh. 7 - The 10-year bonds issued by KP Enterprises were...Ch. 7 - Prob. 7.4CTFCh. 7 - Prob. 7.6CTFCh. 7 - The term structure of interest rates is based on...Ch. 7 - Treasury Bonds [LO1] Is it true that a U.S....Ch. 7 - Interest Rate Risk [LO2] Which has greater...Ch. 7 - Treasury Pricing [LO1] With regard to bid and ask...Ch. 7 - Prob. 4CRCTCh. 7 - Call Provisions [LO1] A company is contemplating a...Ch. 7 - Coupon Rate [LO1] How does a bond issuer decide on...Ch. 7 - Prob. 7CRCTCh. 7 - Prob. 8CRCTCh. 7 - Prob. 9CRCTCh. 7 - Term Structure [LO5] What is the difference...Ch. 7 - Crossover Bonds [LO3] Looking back at the...Ch. 7 - Municipal Bonds [LO1] Why is it that municipal...Ch. 7 - Bond Market [LO1] What are the implications for...Ch. 7 - Prob. 14CRCTCh. 7 - Bonds as Equity [LO1] The 100-year bonds we...Ch. 7 - Prob. 1QPCh. 7 - Interpreting Bond Yields [LO2] Suppose you buy a 7...Ch. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Coupon Rates [LO2] Essary Enterprises has bonds on...Ch. 7 - Bond Prices [LO2] Sqeekers Co. issued 15-year...Ch. 7 - Prob. 7QPCh. 7 - Coupon Rates [LO2] DMA Corporation has bonds on...Ch. 7 - Zero Coupon Bonds [LO2] You find a zero coupon...Ch. 7 - Valuing Bonds [LO2] Yan Yan Corp. has a 2,000 par...Ch. 7 - Valuing Bonds [LO2] Union Local School District...Ch. 7 - Calculating Real Rates of Return [LO4] If Treasury...Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Nominal versus Real Returns [LO4] Say you own an...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Bond Price Movements [LO2] Bond X is a premium...Ch. 7 - Interest Rate Risk [LO2] Both Bond Sam and Bond...Ch. 7 - Interest Rate Risk [LO2] Bond J has a coupon rate...Ch. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Accrued Interest [LO2] You purchase a bond with an...Ch. 7 - Prob. 24QPCh. 7 - Finding the Bond Maturity [LO2] Shinoda Corp. has...Ch. 7 - Prob. 26QPCh. 7 - Bond Prices versus Yields [LO2] a. What is the...Ch. 7 - Prob. 28QPCh. 7 - Zero Coupon Bonds [LO2] Suppose your company needs...Ch. 7 - Finding the Maturity [LO2] Youve just found a 10...Ch. 7 - Prob. 31QPCh. 7 - Components of Bond Returns [LO2] Bond P is a...Ch. 7 - Holding Period Yield [LO2] The YTM on a bond is...Ch. 7 - Valuing Bonds [LO2] Jallouk Corporation has two...Ch. 7 - Valuing the Call Feature [LO2] At one point,...Ch. 7 - Prob. 36QPCh. 7 - Real Cash Flows [LO4] When Marilyn Monroe died,...Ch. 7 - Prob. 38QPCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 7MCh. 7 - Prob. 8MCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 10M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Question 6 Assume that a bond makes 10 equal annual payments of \$1,000$1,000 starting one year from today. The bond will make an additional payment of \$100,000$100,000 at the end of the last year, year 10. (This security is sometimes referred to as a coupon bond.) If the discount rate is 3.5\%3.5% per annum, what is the current price of the bond?arrow_forwardD3) Finance The spread between the yield on a five-year bond issued by a company and the yield on a similar risk-free bond is 80 basis points. Assuming a recovery rate of 40%, estimate the average hazard rate per year over the five-year period. If the spread is 70 basis points for a three-year bond, what do your results indicate about the average hazard rate in years 4 and 5?arrow_forwardProblem 2: The US government issues a Treasury bond that matures in 5 years, has a face value of $1,000 and a coupon yield of 10 percent, and pays semi-annual coupons. Suppose the Yield To Maturity (YTM) of similar bonds is 8%, What is the price of this Treasury bond? Suppose the YTM was 12% instead. Without making any calculation, state and prove whether the bond price would be higher or lower than the face value. After holding the bond for 6 months, you receive one coupon payment and then you immediately sell the bond for a price of $110 (per $100 of face value). Compute the holding period return (the YTM is 8%).arrow_forward
- 34. A $1,000, 5%, 20-year annual pay-bond has a yield of 6.5%. If the yield remains unchanged, how much will the bond value increase over the next three years?A. $13.62B. $13.78C. $13.96arrow_forwardQuestion2 (iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing20% coupon rate. The market interest rate is 25%. The coupons are paid every sixmonths. You are to calculate the price of this bond.arrow_forwardINV problem 3 question 3 The spot rate for the first year, the forward rate for the second year, and the forward rate for third year are 5.2%, 5.4%, and 5.5%, respectively. A corporate bond has a $1000 face value, 3 years to maturity, and a 5% annual coupon. This bond is retractable (puttable) only at two times: at the end of year 1 for $975, and at the end of year 2 for $990. These bonds trade at a 2% yield spread to the stated term structure, and issue costs are minimal and can be ignored. Applying the PEH, when, if ever, would you expect the bondholders to put the bond back to the corporation?arrow_forward
- Zero Coupon BondsE5B.The state of Ohio needs to raise $25,000,000 for highway repairs. Officials are considering issuing zero coupon bonds, which do not require periodic interest payments. The current market interest rate for the bonds is 8 percent. What face value of bondsmust be issued to raise the needed funds, assuming the bonds will be due in 30 yearsand compounded annually? How would your answer change if the bonds were due in50 years? How would both answers change if the market interest rate were 6 percentinstead of 8 percent?arrow_forwardQ3) The Omani Company has two bond issues outstanding. Both bonds pay OMR (100) annual interest plus OMR (1000) face value at maturity. Bond L has a maturity of 15 years, sell after three years issued, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of market interest is 12%? what can you conclude from the results of the above questions regarding the bond risks?arrow_forwardHW#3 Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has 8 years to maturity. What is the bond’s yield to maturity? A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10. Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%. Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%. Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the…arrow_forward
- 7. Both Bond Sam and Bond Dave have 7.1 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? 8. Union Local School District has a bond outstanding with a coupon rate of 2.9 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 2.7 percent, and the bond has a par value of $5,000. What is the dollar price of the bond?arrow_forwardQUESTION 9 Last month, you invested $5,000 in a 10-year corporate bond to hold as an investment. If the Fed announces that they will increase interest rates next month, what is the expected impact on the value of your investment in the bond? A. Bond price will decline due to the interest rate increase B. The bond will continue to pay the same coupon rate, so the bond price will not change C. Bond price will increase due to the interest rate increasearrow_forwardP2. Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Bonds Explained for Beginners | Bond Types 101; Author: TommyBryson;https://www.youtube.com/watch?v=yuKmHTgqZ5o;License: Standard Youtube License