Question

8)

Suppose a seven-year, $1,000 bond with a 10.96% coupon rate and semiannual coupons is trading with a yield to maturity of 8.00%.

**a.** Is this bond currently trading at a
discount, at par, or at a premuim? Explain.

**b.** If the yield to maturity of the bond rises
to 8.73%

(APR with *semiannual* compounding), at what price will
the bond trade?

**a.** Is this bond currently trading at a
discount, at par, or at a premuim? Explain.

The bond is currently trading... (Select the best choice below.)

A.... at a premium because the coupon rate is greater than the yield to maturity

B.... at a discount because the coupon rate is greater than the yield to maturity

C.... at a premium because the yield to maturity is greater than the coupon rate.

D.... at par because the coupon rate is equal to the yield to maturity

9)

Assume Evco, Inc., has a current stock price of $56 and will pay a $2.25 dividend in one year; its equity cost of capital is 19%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price?

The expected price is $ ----------. (Round to the nearest cent.)

2)

Which do you prefer: a bank account that pays 8% per year (EAR) for three years or:

**a.** An account that pays 4% every six months for
three
years?

**b.** An account that pays 12% every 18 months for
three
years?

**c.** An account that pays 0.8% per month for
three years?

**a.** An account that pays 4% every six months for
three
years?

If you deposit $1 into a bank account that pays 8% per year for three years, you will have

$ ----------------. (Round to five decimal places.)

Answer #1

8.

a.

The relationship between bond price and Yield to maturity is an inverse relationship. That is when YTM increases bond price decreases and when YTM decreases Bond price increases. Coupon rate of bond is 10.96% and YTM of bond is 8.00%. Since, Market return is less than coupon rate of bond, so price of bond is more than Par value. So, bond is trading at premium.

b.

If YTM of bond is 8.73%, so price of bond at 8.73% is calculated in excel and screen shot provided below:

Bond is trade at $1,114.99.

Suppose a seven-year, $1,000 bond with a 9.43%coupon rate and
semiannual coupons is trading with a yield to maturity of
6.87%.
a. Is this bond currently trading at a discount, at par, or at
a premuim? Explain. The bond is currently trading... (Select the
best choice below.)
A. ... at a premium because the yield to maturity is greater
than the coupon rate.
B... at par because the coupon rate is equal to the yield to
maturity
C... at a...

Suppose a seven-year, $1,000 bond with a 7.6% coupon rate and
semiannual coupons is trading with a yield to maturity of
6.54%.
a. Is this bond currently trading at a discount, at par, or at
a premium? Explain.
b. If the yield to maturity of the bond rises to 7.33% (APR with
semiannual compounding), what price will the bond trade for?
a. Is this bond currently trading at a discount, at par, or at
a premium? Explain. (Select the best...

Suppose a seven-year, $1000 bond with an 8% coupon rate and
semiannual coupons is trading with a yield
to maturity of 6.75%.
a.Is this bond currently trading at a discount, at par, or at a
premium? Explain.
Answer
___________________________________________________________
b.If the yield to maturity of the bond rises to 7.00% (APR with
semiannual compounding), what
price will the bond trade for?
Answer ______________________

Q14- Suppose a seven-year, $1,000 bond with an 8.4% coupon rate
and semiannual coupons is trading with a yield to maturity of
6.52%.
a. Is this bond currently trading at a discount, at par, or at
a premium? Explain.
b. If the yield to maturity of the bond rises to 7.32%
(APR with semiannual compounding), what price will the bond
trade for?
If the yield to maturity of the bond rises to
7.32 %
(APR with semiannual compounding), what price...

Suppose a seven-year, $ 1000 bond with a 7.9 % coupon rate and
semiannual coupons is trading with a yield to maturity of 6.53
%.
a. Is this bond currently trading at a discount, at par, or at
apremium? Explain.
b. If the yield to maturity of the bond rises to 7.08 % (APR
with semiannual compounding), what price will the bond trade
for?

7)
The prices of several bonds with face values of $1,000 are
summarized in the following table:
Bond
A
B
C
D
Price
$905.72
$057.48
$1,179.66
$1,000.00
For each bond, provide an answer for whether it trades at a
discount, at par, or at a premium. Bond A trades at
(a).----------------?
Is it Discount, Par Or Premium?
(Select from the drop-down menu.)
5)
Suppose a 10-year, $1,000 bond with a 12% coupon rate and
semiannual coupons are trading for a...

Suppose a 10-year, $1,000 bond with an 8% coupon rate and
semiannual coupons is trading for $1,034.74.
A: What is the bond’s yield to maturity (expressed as an APR
with semiannual compounding)? Coupon? Number of periods? Yield to
Maturity?
B: If the bond’s yield to maturity changes to 9% APR, what will
the bond’s price be? Semi-annual yield? Bond Price?

Suppose a 10-year, $ 1,000 bond with a 10% coupon rate and
semiannual coupons is trading for a price of $1,177.98. 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 8 %8% APR, what will the bond's price be?

Suppose a ten-year $1000 bond with an 8% coupon rate and
semiannual coupons is trading for $1034.74.
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%APR, what will
be the bond's price?

5) Suppose a 15-year, $1000 bond with an 8% coupon rate and
semiannual coupons is trading for $1374.74.
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 4% APR, what will
the bond’s price be?

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