Question

Which one of the following 15-year bonds with a maturity value of $3,000,000 would generate the lowest proceeds upon issuance?

Select one:

A. A bond with a coupon interest rate of 9% and a prevailing market rate of 7%

B. A bond with a coupon interest rate of 8% and a prevailing market rate of 8%

C. A bond with a coupon interest rate of 6% and a prevailing market rate of 6%

D. A bond with a coupon interest rate of 7% and a prevailing market rate of 9%

Answer #1

Ans. is D A bond with a coupon interest rate of 7% and a prevailing market rate of 9%

Explanation: Since Bond proceeds will be higher than face value, if coupon interest rate is more than market interest rate, so option A is not right, secondly, if coupon interest rate and market interest rate is same bond will be issued at par value so under option B and C Proceed will be $3M and if Coupon interest rate is lower than market rate, bond will be issued at discount, i.e. under option D bond proceeds will be lower than $3M

ALT-BOND-BASICS
Johnson Company issued $3,000,000 of bonds with an interest
rate of 8% and 6 year maturity.
The bonds were issued at a price of 102%.
1
How much cash did Johnson Company receive at
issuance?
3060000
2
How much will Johnson need to pay off the bonds at
maturity?
3
How much interest will Johnson pay per year?
4
Were the bonds issued at face value, at a discount, or at a
premium?

Company A issued 15-year, noncallable, 8% annual coupon bonds at
their par value of $1,000 one year ago. Today, the market interest
rate on these bonds is 8%. What is the current price of the bonds,
given that they now have 14 years to maturity?

BOND VALUATION Callaghan’s Motors’ bonds have
15 years remaining to maturity. Interest is paid
semi-annually, they have a $1,000 par value, the
coupon interest rate is 9%, and the yield to maturity is 8%. What
is the bond’s current market price?
BOND VALUATION Nungesser Corporation’s
outstanding bonds have a $1,000 par value, a 9% semiannual coupon,
8 years to maturity, and an 8.5% YTM. What is the bond’s
price?
BOND VALUATION and YIELD TO MATURITY Suppose a
10-year, $1000 bond...

Big Pear has 10,000 outstanding bonds. These bonds have a
30-year maturity and $1,000 par value. Their yield to maturity is
8%, they pay interest semiannually, and they sell at a price of
$1,113.12. What is the bond's coupon interest rate?
6%
7%
8%
9%
10%
4.5%

Which of the following bonds has the highest interest rate risk?
All bonds have the same face value and make annual coupon
payments.
A. 10-year bonds with 5% coupon rate B. 10-year bonds with 4%
coupon rate C. 10-year bonds with 3% coupon rate D. 5-year bonds
with 6% coupon rate E. 5-year bonds with 5% coupon rate
The Grand Adventure has a 7-year, 6 percent annual coupon bond
outstanding with a $1,000 par value. The bond has a yield...

One year ago Lerner and Luckmann Co. issued 15-year,
noncallable, 9% annual coupon bonds at their par value of $1,000.
Today, the market interest rate on these bonds is 5.5%. What is the
current price of the bonds, given that they now have 14 years to
maturity?
Select the correct answer.
a. $1,338.48
b. $1,341.32
c. $1,332.80
d. $1,335.64
e. $1,344.16

(Bond valuation) You are examining three bonds with a par value
of $1 comma 000 (you receive $1 comma 000 at maturity) and are
concerned with what would happen to their market value if interest
rates (or the market discount rate) changed. The three bonds are
Bond Along dash a bond with 6 years left to maturity that has an
annual coupon interest rate of 9 percent, but the interest is paid
semiannually. Bond Blong dash a bond with 11...

On 01-01-15, B issued $3,000,000 of 4%, 10-year term bonds. The
bonds pay interest every July 1 and January 1. At the time B issued
the bonds, similar bonds paid 4.5%. Upon issuing the bonds, B
incurred and paid $30,000 of bond issuance costs. B uses the
effective-interest method to amortize any bond discount or premium.
B only prepares AJEs every December 31. Prepare the entries B
should make on:
01-01-15
07-01-15
12-31-15
01-01-16

Consider the following bonds:
Coupon Rate
Maturity
Bond
(annual payments)
(years)
A
0%
15
B
0%
10
C
4%
15
D
8%
10
a.
What is the percentage change in the price of each bond if its
yields to maturity falls from 6% to 5%?
Par value
Yield to maturity
Price at
Percentage
Bond
Coupon Rate
Maturity
Price
5.00%
Change
A
B
C
D
b.
Which of the bonds A–D are most sensitive to a 1% drop in interest
rates...

Problem 7-9
Yield to maturity
Harrimon Industries bonds have 4 years left to maturity.
Interest is paid annually, and the bonds have a $1,000 par value
and a coupon rate of 8%.
What is the yield to maturity at a current market price of
$827? Round your answer to two decimal places.
%
$1,036? Round your answer to two decimal places.
%
Would you pay $827 for each bond if you thought that a "fair"
market interest rate for such...

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