Bond prices and yields: Assume that a $1,000-par-value bond has a coupon rate of 6% and will mature in 10 years. It has a current price quote of $877.44. Given thisinformation, answer the following questions.

a.What is the yield to maturity of thebond? ( Round to two decimal places)

b.What is the current yield of thebond? (Round to two decimal places)

c.Why does the current yield differ from the yield tomaturity? (Round to two decimal places)

d.One yearlater, the market rates have increased to 8.00%. Assume that you have just received a coupon payment and sold the bond. If you sold your bond at its intrinsicvalue, what would the rate of return be on yourinvestment? (Round to two decimal places)

Bond interest payments before and after taxes: Your company needs to raise $55 million, and you want to issue 10-year annual coupon bonds to raise this capital. Assume that the bond has a $1,000-par-value. Suppose the market requires the return of yourcompany's bonds to be 7%, and you decide to issue them at par.

a.How many bonds would you need toissue? (Round to two decimal places)

b.What will be the total expense to your company at the time when the bonds mature in year 10? (Round to two decimal places)

c.Suppose your company is in the 25% tax bracket. What is yourcompany's netafter-tax interest cost associated with this bond issue at the time when the bonds mature in year 10?(Round to two decimal places)

Answer rating: 100% (QA)

Bond Prices and Yields a Yield to Maturity YTM Using a financial calculator or spreadsheet function ... View the full answer