E4 listen Your grandmother just gave you various bonds as follows: Two zero-coupon government bonds that each have a $1,000 face value with 10 years left to maturity and a 5% required rate of return (YTM). Three corporate bonds that each havea $1,000 face value and a 5% coupon rate per year that is paid semi-annually. The corporate bonds have 10 years left to maturity and a 14% per year required rate of retum (YTM), What is the value of one of the described corporate bonds?

Step 1:PV=present value of the bondC=Coupon Payment per periodr= Required rate of return , per…

Answered: E4 listen Your grandmother just gave…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 11P

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A government bond that originally cost $5000 with a yield of 6% (simple interest) has 5 years left before redemption. i. Determine its present value if the prevailing rate of interest is 10%. Briefly explain the steps in your own words. ii. Is it worth purchasing this bond? Provide your own reasoning.
You wish to purchase some 25-year - maturity strip bonds with the $11,874 in cash you now have. If these strip bonds are currently priced to yield 2.125% compounded semiannually, how many $1000 denomination bonds can you purchase? a 5 bonds b 8 bonds c 6 bonds d 14 bonds e 7 bonds
Y8 Here are data on $1,000 par value bonds issued by Caterpillar and Intel. Assume you are thinking about buying these bonds. CaterpillarIntelCoupon5%4%Years to Maturity810Required Return4%5% Answer the following questions: a) Assuming interest is paid annually, calculate the values of each of the bonds b) How would these values change if the coupon was paid semiannually ( c) Assume that the bonds with the coupon that is paid annually (point a) are selling for the following amounts: · Caterpillar $1,050 · Intel $980 What are the expected rates of return (YTM) for each bond? d) How would change the price of each bond if the required rate of return (current 4% for Caterpillar and 5% for the Intel and with annual coupon) increased by 2% What will you deduce about the relationship between market interest rate and bond prices? .
(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 12 percent interest annually and have 11 years until maturity. You can purchase the bond for $945. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 14 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%. (Round to two decimal places.)
4. Suppose that an investment institution offers you two kinds of bonds and you are willing to take one of them. The first bond, called 'Bond A1' pays you $5000 in 10 years, while the second bond, called 'Bond B1' pays you the same amount but in 20 years. а. If the interest rate is 5%, what is the value of each bond today? Which bond is worth more? Why? b. If the interest rate increases to 8%, what is the value of each bond? Which bond has a larger percentage change in value? After knowing the answer of A and B, you will С. be able to complete this sentence: "The value of bond [rises / falls] when the interest rate increases, and bonds with longer time to maturity are [more/less] sensitive to changes in the interest rate"
Suppose a Google.com bond will pay $4,000 ten years from now. If the going interest rate on safe 9-year bonds is 4.20%, how much is the bond worth today? Group of answer choices $3,066.38 $2,613.77 $2,887.56 $2,762.17 $2,660.65
The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 15 years until maturity. You can purchase the bond for $1,155. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 6 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%.
The company you work for is offering bonds that have a face value of $1,000 and a life of 10 years. Since $40 or 46 of the face value is paid every 6 months, the bond has a nominal or coupon rate of 8w per year. If your company paid and underwer 19 to sell the bond, which answer is closest to the effective annual interest rate that the company is paying on the bond? a. 7.160% b. 4,077% C. 4.500% d. 8.320% e. None of these
A. You are offered to buy a 4-year coupon corporate bond in the beginning of its 7th month on its third year for $963.94. Its face value is $1,000 and its coupon rate is 5.172% p.a. with coupon paid at the end of each quarter. Government bond rate now is 6.9%. (a) Is $963.94 a good price for you to buy it or not? What is the fair price for the bond? (b) What is the yield if you buy at the price that you have been offered? (c) If the government bond rate suddenly goes down to 4.7%, what will be the new fair value of the bond? B. The company just paid a $1.48 annual dividend and announced the plans to pay $1.54 next year. The dividend growth rate is expected to remain constant at the current level for the following 4 years and then settle at 3 percent per year. If you are planning to buy this stock in two years' time, how much would you expect to pay for it if the required rate of return is 7 percent at the time of your purchase? (Use two decimal rounding)
A. you are offered to buy a 4 year coupon bond in the beginning of its 7th month on its third year for $963.94. its face value is $1,000 and its coupon rate is 5.172% per annum, with coupon paid at the end of each quarter . government bond rate now is 6.9%. a. is $963.94 a good price for you to buy it or not ? what is the fair price for the bond ? b. what is the yield if you buy at the price that you have been offered ? c. if the government bond rate suddenly goes down to 4.7%, what will be the fair value of the bond ? B. the company just paid $1.48 annual dividend and announce the plns to pay $1.54 next year . the dividend growthrate is expected to remain constant at the current level for the following 4 years and then settle at 3% per year , if you are planning to buy this stock in 2 years time, how much would you expect to pay for it if the required rate of return is 7% at the time of your purchase ? ( use two deciaml rounding )
Suppose a State of New Jersey bond will pay $1,000 five years from now. If the going interest rate on these 10-year bonds is 4.1%, how much is the bond worth today? 1. $675.79 2. $817.99 3. $628.96 4. $749.39 5. $669.10
10. Determining Interest and Approximate Bond Value. Assume that three years ago, LO: you purchased a corporate bond that pays 4.60 percent. The face value of the bond was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 5.20 percent. a. What is the annual dollar amount of interest that you receive from your bond investment? b. Assuming that comparable bonds are paying 5.20 percent, what is the approximate dollar price for which you could sell your bond? c. In your own words, explain why your bond increased or decreased in value. e here to search O 144 96 5

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