Problems Easy Problems 7-1 BOND VALUATION Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the...


Problems<br>Easy<br>Problems<br>7-1<br>BOND VALUATION Madsen Motors's bonds have 23 years remaining to maturity. Interest<br>is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield<br>to maturity is 11%. What is the bond's current market price?<br>1-4<br>7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 12 years to matu-<br>rity, and an 8% annual coupon and sells for $980.<br>a. What is its yield to maturity (YTM)?<br>b. Assume that the yield to maturity remains constant for the next three years. What will<br>the price be 3 years from today?<br>7-3 BOND VALUATION Nesmith Corporation's outstanding bonds have a $1,000 par value, an<br>8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond's price?<br>7-4 YIELD TO MATURITY A firm's bonds have a maturity of 8 years with a $1,000 face value,<br>have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a<br>price of $1,283.09. What are their nominal yield to maturity and their nominal yield to call?<br>What return should investors expect to earn on these bonds?<br>Intermediate<br>7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of<br>$1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures<br>in 1 year.<br>a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%?<br>Assume that only one more interest payment is to be made on Bond S at its maturity<br>and that 12 more payments are to be made on Bond L.<br>b. Why does the longer-term bond's price vary more than the price of the shorter-term<br>bond when interest rates change?<br>Problems<br>5-14<br>7-6 BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each<br>bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%.<br>Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond.<br>a. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4<br>years, calculate the price of the bonds at each of the following years to maturity:<br>Years to Maturity<br>Price of Bond C<br>Price of Bond Z<br>4<br>3<br>2<br>1<br>

Extracted text: Problems Easy Problems 7-1 BOND VALUATION Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield to maturity is 11%. What is the bond's current market price? 1-4 7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 12 years to matu- rity, and an 8% annual coupon and sells for $980. a. What is its yield to maturity (YTM)? b. Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today? 7-3 BOND VALUATION Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond's price? 7-4 YIELD TO MATURITY A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a price of $1,283.09. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds? Intermediate 7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? Problems 5-14 7-6 BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond. a. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity: Years to Maturity Price of Bond C Price of Bond Z 4 3 2 1
Jun 09, 2022
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