Fin 3403 Assignment 8

1. Bond price: Pierre Dupont just received a gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays annual coupons of 4.89 percent. If the current market rate is 8.40 percent, the maximum amount Pierre should be willing to pay for this bond is $

2. Zero coupon bonds: Northrop Real Estate Company is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming the appropriate discount rate is 15.79 percent and semiannual compounding, the price of these bonds is $

3. Zero coupon bonds: Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 10.48 percent, the value of these bonds are

4. Yield to maturity: Ruth Hornsby is looking to invest in a three-year bond that pays semiannual coupons at a coupon rate of 11.39 percent. If these bonds have a market price of $940.88, the yield to maturity is___% and the effective annual yield is___%

5. Zero coupon bonds: Diane Carter is interested in buying a five-year zero coupon bond whose face value is $1,000. She understands that the market interest rate for similar investments is 9.51 percent. Assuming annual compounding, the current price of this bond is $

6. Bond price: BA Corp is issuing a 10-year bond with a coupon rate of 6.71 percent. The interest rate for similar bonds is currently 4.83 percent. Assuming annual payments, value of the bond is $

7. Zero coupon bonds: Kintel, Inc., wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. Their investment banker informs them that investors would use an 9.26 percent discount rate on such bonds. At this discount rate the bonds would sell for $ __ (*), and the firm would have to issue ____(**) shares in order to raise $1 million. Assume semi-annual compounding for payments.

*(*)(Round your answer to 2 decimal places.)*
*(**)(Round your answer to 0 decimal places.)*
*(All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation.)*

8. Yield to maturity: Electrolex, Inc., has four-year bonds outstanding that pay a coupon rate of 11.61 percent semiannually. If these bonds are currently selling at $947.05, the yield to maturity that an investor can expect to earn on these bonds is ____% and the effective annual yield is ___%

9. Yield to maturity: Adrienne Dawson is planning to buy 10-year zero coupon bonds issued by the U.S. Treasury. If these bonds with a face value of $1,000 are currently selling at $615.05, the Effective Annual Yield on these bonds is ___%. (Assume that interest compounds semiannually on similar coupon-paying bonds.)

10. Bond price: The International Publishing Group is raising $10 million by issuing 15-year bonds with a coupon rate of 10.73 percent. Coupon payments will be annual. Investors buying the bond currently will earn a yield to maturity of 9.49 percent. The bonds would sell for $ ___ in the marketplace?

11. Bond price: Marshall Company is issuing eight-year bonds with a coupon rate of 6.16 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.35 percent, the bonds will sell for $____(*). If the company wants to raise $1.25 million, the firm must sell ____(**) bonds.

*(*)(Round your answer to 2 decimal places.)*
*(**)(Round your answer to 0 decimal places.)*
*(All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation.)*

12. Bond price: Rockne, Inc., has 15-year bonds that will mature in six years and pay an 8 percent coupon, interest being paid semiannually. If your required rate of return is 6.27 percent, the value of the bond today is $ ___. If you paid $1,053.61 you received a? Good, bad, or fail deal?

13. Bond price: Pullman Corp issued 10-year bonds four years ago with a coupon rate of 10.18 percent, paid semiannually. At the time of issue, the bonds sold at par. Today, bonds of similar risk and maturity will pay a coupon rate of 7.51 percent. The current market price of the firm’s bonds is $ ____?

(Round your answer to 2 decimal places. All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation.)

14. Zero coupon bonds: Rockinghouse Corp. plans to issue seven-year zero coupon bonds. It has learned that these bonds will sell today at a price of $369.37. Assuming annual coupon payments, the yield to maturity on these bonds is ___%?

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