FIN HW 2

A 10-year Circular File bond pays interest of $55 annually and sells for $984. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Round “Coupon rate” to 1 decimal place and “Yield to maturity” to 2 decimal places.)

Coupon rate [removed] %
  Yield to maturity [removed] %

A 5-year Circular File bond pays interest of $50 annually and sells for $976. If Circular File wants to issue a new 5-year bond at face value, what coupon rate must the bond offer? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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  Coupon rate [removed] %
A bond has 8 years until maturity, a coupon rate of 5%, and sells for $1,065.

 

a. What is the current yield on the bond? (Round your answer to 2 decimal places.)

 

  Current yield [removed] %

 

b. What is the yield to maturity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Yield to maturity [removed] %

 

General Matter’s outstanding bond issue has a coupon rate of 8.6%, and it sells at a yield to maturity of 7.75%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Round your answer to 2 decimal places.)

 

  Coupon rate [removed] %
Refer the table below:

 

Maturity Coupon Bid Price Asked Price Asked Yield, %
2012 May 15 1.375 101:05 101:06 0.78
2013 May 15 3.625 106:31 107:01 1.23
2014 May 15 4.75 111:22 111:23 1.70
2020 May 15 8.75 144:17 144:19 3.44
2025 Aug 15 6.875 133:07 133:11 3.94
2030 May 15 6.25 128:25 128:27 4.12
2040 May 15 4.375 100:28 100:29 4.32

 

What is the current yield of the 4.75% 2014 maturity bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Current yield [removed] %

One bond has a coupon rate of 5.4%, another a coupon rate of 8.2%. Both bonds have 13-year maturities and sell at a yield to maturity of 7.5%.

 

a. If their yields to maturity next year are still 7.5%, what is the rate of return on each bond? (Do not round intermediate calculations. Round your answers to 1 decimal place.)

 

Rate of Return
  Bond 1 [removed] %
  Bond 2 [removed] %

 

b. Does the higher coupon bond give a higher rate of return?
[removed] Yes
[removed] No

Fill in the table below for the following zero-coupon bonds. The face value of each bond is $1,000. (Do not round intermediate calculations. Round “Yield to maturity” to 3 decimal places and rest of the answers to 2 decimal places.)

 

      Price        Maturity (Years) Yield to Maturity
$320.00 20.00 [removed] %
320.00 [removed] 10.000
[removed]Perpetual Life Corp. has issued consol bonds with coupon payments of $50. (Consols pay interest forever and never mature. They are perpetuities.)

a. If the required rate of return on these bonds at the time they were issued was 5%, at what price were they sold to the public?
  Price sold to the public $ [removed]
b. If the required return today is 8%, at what price do the consols sell?
  Current price $ [removed]
12.00 9.000

Large Industries bonds sell for $1,096.52. The bond life is 11 years, and the yield to maturity is 7.2%. What must be the coupon rate on the bonds? (Do not round intermediate calculations. Enter your response as a percentage rounded to one decimal place.)

 

  Coupon rate [removed] %

Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 7.8%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the price of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Price of the bond $ [removed]

 

b. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 90% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Yield to maturity [removed] %
You buy a(n) 7.6% coupon, 6-year maturity bond for $979. A year later, the bond price is $1,144.

 

a. What is the new yield to maturity on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Yield to maturity [removed] %

 

b. What is your rate of return over the year?(Round your answer to 2 decimal places.)

 

  Rate of return [removed] %

You buy a(n) 5.4% coupon, 14-year maturity bond when its yield to maturity is 6.4%. A year later, the yield to maturity is 7.4%. What is your rate of return over the year? (Negative value should be indicated by a minus sign.Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Rate of return [removed] %

2-year maturity bond with face value of $1,000 makes annual coupon payments of $96 and is selling at face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is (Do not round intermediate calculations. Round your answers to 2 decimal places.)

   Rate of Return
a. 6% [removed] %
b. 9.6% [removed] %
c. 11.6% [removed] %

 

 

A bond that pays coupons annually is issued with a coupon rate of 4.6%, maturity of 25 years, and a yield to maturity of 7.6%. What rate of return will be earned by an investor who purchases the bond and holds it for 1 year if the bond’s yield to maturity at the end of the year is 8.6%? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Rate of return [removed] %

A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 8.8%. A-rated bonds sell at yields of 9.1%. Assume a 10-year bond with a coupon rate of 8.3% is downgraded by Moody’s from Aa to A rating.

 

a. Calculate the initial price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Initial price $ [removed]

 

b. Calculate the new price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  New price $ [removed]

A 25-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8%.

 

a. What is the bond’s yield to maturity if the bond is selling for $1,050? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

 

  Yield to maturity [removed] %

 

b. What is the bond’s yield to maturity if the bond is selling for $1,000?

 

  Yield to maturity [removed] %

 

c. What is the bond’s yield to maturity if the bond is selling for $1,250? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

 

  Yield to maturity [removed] %

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