Question

Suppose the director of the Apple company comes up with an innovative financing plan where the...

Suppose the director of the Apple company comes up with an innovative financing plan where the company will issue bonds that pay coupons every 12 months. Suppose this new bond will have a maturity of 10 years.

  1. At the time of issue, the market discount rate (annual) equals the coupon rate of 5.5%. How much would an investor be willing to pay for the bond when it is issued, if the face value is $1000?

  1. Now suppose exactly one year has passed since the company issued the bond and the market discount rate (annual) is now 6.4%. What is the current price of the bond in the market? You may assume that the first coupon has already been paid.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a)

Since coupon rate is equal to market discount rate, bond will be traded at par value i.e. $1,000

Investor will pay $1,000 per bond

b)

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of...
With celebrity​ bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of​ 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.5% and will mature on this day 37 years from now. The yield on the bond issue is currently 6.4%. At...
Suppose US government issues a treasury bond at Jan 15 2005 with a face value of...
Suppose US government issues a treasury bond at Jan 15 2005 with a face value of $100, and the bond matures at Jan 15 2015. The bond pays semi-annual coupons, with a coupon rate of 7.5%. a. If the market interest rate at Jan 15 2005 is 8%. What is the bond price? b. Now one year later, you are at Jan 15 2006. After two coupon payments, and the market interest rate changes to 7%. If you want to...
1. Ahmad Corp. just issued ten-year bonds that make annual coupon payments of $50. suppose you...
1. Ahmad Corp. just issued ten-year bonds that make annual coupon payments of $50. suppose you purchased one of these bonds at par value ($1,000) when it was issued. Right after your purchase, market interest rates jumped, and the YTM (interest rate) on your bond rose to six percent. What is the new price of you bond? 2. Assume a bond matures for $1000 six years from today and has a 7% coupon rate with semiannual coupons. What is the...
1) Suppose a​ ten-year, $1000 bond with an 8.2% coupon rate and semiannual coupons is trading...
1) Suppose a​ ten-year, $1000 bond with an 8.2% coupon rate and semiannual coupons is trading for %1,035.49. a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)? b. If the​ bond's yield to maturity changes to 9.9% ​APR, what will be the​ bond's price? 2) Suppose a​ seven-year, $1,000 bond with an 8.2% coupon rate and semiannual coupons is trading with a yield to maturity of 6.63%. a. If the yield to maturity of...
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued...
Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $19,000,000 of 5-year, 8% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 10%, resulting in Ebert receiving cash of $17,532,812. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round amounts to the nearest dollar. If an amount box does not require...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and a 10% coupon rate with interest being paid semiannually. The market rate of interest when the bonds were issued was 10%. Two years after the bonds were issued, the market rate rose to 13%. The most recent common-stock dividend for Olympic Corp was $3.45 per share. Due to its stable sales and earnings, the firm’s management predicts dividends will remain at the current level...
Question 1 of 71 The yield to maturity on a coupon bond is … ·      always greater...
Question 1 of 71 The yield to maturity on a coupon bond is … ·      always greater than the coupon rate. ·       the rate an investor earns if she holds the bond to the maturity date, assuming she can reinvest all coupons at the current yield. ·      the rate an investor earns if she holds the bond to the maturity date, assuming she can reinvest all coupons at the yield to maturity. ·      only equal to the internal rate of return of a bond...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and...
Olympic Corp sold an issue of bonds with a 15-year maturity, a $1,000 face value, and a 10% coupon rate with interest being paid semiannually. The market rate of interest when the bonds were issued was 10%. Two years after the bonds were issued, the market rate rose to 13%. The most recent common-stock dividend for Olympic Corp was $3.45 per share. Due to its stable sales and earnings, the firm’s management predicts dividends will remain at the current level...
On the first day of its fiscal year, Chin Company issued $24,400,000 of five-year, 4% bonds...
On the first day of its fiscal year, Chin Company issued $24,400,000 of five-year, 4% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 6%, resulting in Chin receiving cash of $22,318,534. a. Journalize the entries to record the following: Issuance of the bonds. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to...
(Individual or Component Costs of Capital) Compute the cost for the following sources of Financing: a....
(Individual or Component Costs of Capital) Compute the cost for the following sources of Financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interior rate of 12%. A new issue would have a flotation cost of 6% of the $1,125 market value. The bonds mature in 10 years. The firm’s average tax rate is 30% and its marginal tax rate is 34%. b. A new common stock issue paid a $1.75 dividend...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT