Question

1. Omega Enterprises has an 8% coupon bond with exactly 16 years to maturity. Interest is paid semi-annually. The bond is priced at $1,125 per $1,000 of face value. a.) What is the yield to maturity on this bond? b.)An investor purchased the bond at $1,125 and sold it 5 years later at a price of $1,023. What was the investor’s return. (Hint: calculate the YTM as in a) above but use the sale price as the future value.

2. Alpha Corporation has a bond outstanding with the following characteristics:

Par Value $1,000

Years to maturity 9

Yield to maturity 6.2%

Coupon payments Semi-annual

Coupon rate 6%

What is the bond’s price?

3. A zero coupon bond has a maturity date exactly 16 years away. It currently sells at a price to yield 4.5%. The yield to maturity on the bond suddenly increases to 5.1%. Calculate a.) its price before the rate increase, b.) its price after the rate increase, and c.) the percentage change?

4. Delta Corporation has a 15 year 5% coupon bond with par value of $1,000 and a price of $1,088.37. The company wants to issue a new 15 year coupon bond at par. What coupon rate does the company need to offer? (Interest is payable semiannually on both bonds. Assume that for both bonds, the next coupon payment is exactly 6 months away.)

5. A 30 year 6% coupon bond has annual payments and a yield to maturity of 4.55. The bond has a par value of $1,000. a.)What is the value of the bond? b.) What is the present value of the 30 coupon payments? c.) What is the present value of the principal payment? (a is equal to b +c)

6. A convertible bond with a par value of $1,000 has a conversion ratio of 40. The bond is currently approaching maturity and the company’s stock price is $29.50. a.) Would you convert? b.) Why?

Answer #1

1) a. Bond Price can be calculated using I/Y function on a calculator

N = 16 x 2 = 32, PMT = 8% x 1000 / 2 = 40, PV = -1125, FV = 1000

=> Compute I/Y = 3.36% (semi-annual)

YTM = 3.36% x 2 = 6.71%

b. N = 5 x 2 = 10, PMT = 40, PV = -1125, FV = 1023

=> Compute I/Y = 2.76%

Annualized returns = 2.76% x 2 = 5.51%

2) Bond Price can be calculated using PV function

N = 9 x 2 = 18, I/Y = 6.2%/2, PMT = 6% x 1000 / 2 = 30, FV = 1000

=> Compute PV = $986.36

3) a. Current Price, PV = FV / (1 + r)^n = 1,000 / (1 + 4.5%)^16 = $494.47

b. New Price PV = FV / (1 + r)^n = 1,000 / (1 + 5.1%)^16 = $451.19

c. % Change = 451.19 / 494.47 - 1 = -8.75%

Stealers Wheel Software has 8 percent coupon bond on the market
with 10 years to maturity, and the par value of $1,000. The bonds
make semi-annual coupon payments and currently sell for $980. What
is the YTM? If the bond with the same maturity and similar risk
pays 6% annual coupon (pays semi-annually), what should be the
market price of the second bond?

CraMerica has 8% coupon bond issue with 8 years to maturity.
Each of these bonds make semi-annual interest payments. These bonds
have a yield to maturity of 10%. Suddenly, the yield to maturity on
these bonds fall to 8%. What is the percentage change in the price
of these bonds. Assume a par value of $1,000. Enter your answer to
two decimal plances with no percentage sign. That is, like this:
13.61

CraMerica has 8% coupon bond issue with 8 years to maturity.
Each of these bonds make semi-annual interest payments. These bonds
have a yield to maturity of 10%. Suddenly, the yield to maturity on
these bonds fall to 8%. What is the percentage change in the price
of these bonds. Assume a par value of $1,000. Enter your answer to
two decimal plances with no percentage sign. That is, like this:
13.61

What is the price of a $1000 face value zero-coupon bond with 4
years to maturity if the required return on these bonds is 3%?
Consider a bond with par value of $1000, 25 years left to
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maturity on these bonds is 7.5%, what is the current bond
price?
One year ago, your firm issued 14-year bonds with a coupon rate
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price of the bond?
2. A 7-year bond has a 8 percent coupon rate with the interest
paid in semi annual payments. The yield to maturity of
the bond is 2.3 percent, and a face value of
$1,000. What is the price of the bond?
3. A 12-year bond has a 9 percent annual coupon, a yield to
maturity of...

A.Bond Prices A $1,000 par bond that pays
interest semiannually has a quoted coupon rate of 7%, a promised
yield to maturity of 7.7% and exactly 6 years to maturity. What is
the bond's current value?
B.Bond Prices A $1,000 par bond that pays
interest semiannually has a quoted coupon rate of 5%, a promised
yield to maturity of 5.7% and exactly 11 years to maturity. The
present value of the coupon stream represents ______ of the total
bond's value....

1) Caribbean Reef Software has 8.4 percent coupon bonds on the
market with 9 years to maturity. The bonds make semiannual payments
and currently sell for 95.5 percent of par. What is the YTM?
2) Suppose that General Motors Acceptance Corporation issued a
bond with 10 years until maturity, a face value of $1000, and a
coupon rate of 7% (annual payments). The yield to maturity on this
bond when it was issued was 6%. Assuming the yield to maturity...

a
20 year, 8% coupon rate, $1,000 par bond that pays interest
semi-annually bought five years ago for $850. this bond is
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a.12.23%
b.11.75%
c.12.13%
d.11.23%
an increase in interest rates will lead to an increase in the
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a. true
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semi-annual interest with a coupon rate of 6%. The bond currently
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between the last interest payment and the next interest payment,
what is the invoice price of the bond?
A.
$1,180.0
B.
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