CORPORATE FINANCE - LL+CONNECT ACCESS
12th Edition
ISBN: 9781264054961
Author: Ross
Publisher: MCG
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Question
Chapter 8, Problem 26QAP
Summary Introduction
Introduction: Bonds are the financial instruments that are issued by the institutions or organizations for specific purpose. These bonds are usually issued for fixed tenure at fixed rate of interest.
To compute: Maturity value of the bond.
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Investigating the principle that all bonds are priced to give the same total yield which is the current market rate of interest. REQUIRED: Create your own bond – i.e. the par value may be kept at 1000, but decide your own coupon rate, maturity period and current market rate of interest. Now compute your total yield which should consist of Current Yield plus Capital Gain/Loss Yield and find out if it equates the market rate of interest that you selected.
Yield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par.
Coupon interest rate
12%
Yield to maturity
6%
What is the price of the bond in relation to its par value? (Select the best answer below.)
O A. The bond sells at a premium to par.
OB. The bond sells at a discount to par.
O C. The bond sells at par.
Yield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to
predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to
par, at par, or at a discount to par.
Coupon interest rate Yield to maturity
10%
8%
What is the price of the bond in relation to its par value? (Select the best answer below.)
O A. The bond sells at a discount to par.
OB. The bond sells at par.
OC. The bond sells at a premium to par.
Chapter 8 Solutions
CORPORATE FINANCE - LL+CONNECT ACCESS
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Prob. 1QAPCh. 8 - Prob. 2QAPCh. 8 - Prob. 3QAPCh. 8 - Prob. 4QAPCh. 8 - Prob. 5QAPCh. 8 - Prob. 6QAPCh. 8 - Prob. 7QAPCh. 8 - Prob. 8QAPCh. 8 - Prob. 9QAPCh. 8 - Prob. 10QAPCh. 8 - Prob. 11QAPCh. 8 - Prob. 12QAPCh. 8 - Prob. 13QAPCh. 8 - Prob. 14QAPCh. 8 - Prob. 15QAPCh. 8 - Prob. 16QAPCh. 8 - Prob. 17QAPCh. 8 - Prob. 18QAPCh. 8 - Prob. 19QAPCh. 8 - Prob. 20QAPCh. 8 - Prob. 21QAPCh. 8 - Prob. 22QAPCh. 8 - Prob. 23QAPCh. 8 - Prob. 24QAPCh. 8 - Prob. 25QAPCh. 8 - Prob. 26QAPCh. 8 - Prob. 27QAPCh. 8 - Prob. 28QAPCh. 8 - Prob. 29QAPCh. 8 - Prob. 30QAPCh. 8 - Prob. 31QAPCh. 8 - Prob. 32QAPCh. 8 - Prob. 33QAPCh. 8 - Prob. 34QAPCh. 8 - Prob. 35QAPCh. 8 - Prob. 1MCCh. 8 - Prob. 3MCCh. 8 - Prob. 5MCCh. 8 - Prob. 6MCCh. 8 - Prob. 7MC
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Similar questions
- The rate of return that you would earn if you bought a bond and held It to its maturity date is called the bond's yield to maturity (YTM). If Interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to Its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Briefly explain with necessary numerical data.arrow_forwardThe bond shown in the following table pays interest annually in the table attached. a. Calculate the yield to maturity (YTM) for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain.arrow_forwardThe bond shown in the following table attached pays interest annually. a. Calculate the yield to maturity (YTM)for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain.arrow_forward
- 2. Consider a bond with a 7.5% annual coupon rate and a face value of $1,000. Calculate the bond price and duration & show your work. Years to Maturity Interest rate Bond Price Duration 4 6. 6. 9. What relationship do you observe between yield to maturity and the current market value? What is the relationship between YTM and duration?arrow_forwardYield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Coupon interest rate Yield to maturity 6% 10% What is the price of the bond in relation to its par value? (Select the best answer below.) A. The bond sells at par. B. The bond sells at a premium to par. O C. The bond sells at a discount to par.arrow_forwardYield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Coupon interest rate Yield to maturity 6% 8% What is the price of the bond in relation to its par value?(Select the best answer below.) A.The bond sells at a premium to par. B.The bond sells at par. C.The bond sells at a discount to par.arrow_forward
- The total annual return on a bond is indicated by a bond's: Question 47 options: Current yield Yield to maturity Coupon rate Capital gains yieldarrow_forwardThe annual interest rate on a bond is called it's ______ rate Par Coupon Best Estimatedarrow_forwardSuppose you purchase bond that has a coupon of $75 face value of $1000 and current price of $1000 what is your coupon rate?what is your current yield?arrow_forward
- Describe 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_forwardPlease solve for all parts and questions (a-e) being asked in the problem. For example the question being asked in Part A is: What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent? Also, please show all work and steps.arrow_forwardSuppose you are reviewing a sheet for a bond portfolio and see the following information. These bonds have a par value of 100 and make semiannual coupon payments. Bond Annual coupon rate Number of years Annual yield to maturity A B с 6% 8% 10% 2 3 5 5% 10% 8% What is the bond portfolio's yield to maturity based on the IRR calculation?arrow_forward
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