CHAPTER 6 - Bonds (Debt)-Characteristics and Valuation

Please show your work 6-10. Filkins Farm Equipment's five-year zero coupon bond is currently selling for $621. The bond's maturity value is $1,000. What is the bond's yield to maturity? N= PMT= FV= PV= I=

6-11. Severn Company's bond has four years remaining to maturity. Interest is paid semiannually, the bond has a $1,000 par value, and the coupon interest rate is 9 percent. Compute the yield to maturity for the bond if the current market price is (a) $851 and (b) $1,105. N= FV= PMT= (a) If PV= $851

(b) If PV= $1,105

6-12 Dcor Interior has an outstanding bond that was issued 20 years ago. The bond has a $1,000 maturity value and a 5.5 percent coupon rate of interest. Interest is paid semiannually. The bond, which matures in five years, is currently selling for $1,022. What is the bond's yield to maturity? N= PV= PMT= FV= I=

6-13 Four years ago Messy House Painting issued a 20-year bond with a $1,000 maturity value and a 4 percent coupon rate of interest. Interest is paid semiannually. The bond is currently selling for $714. (a) What is the bond's yield to maturity? (b) If the bond can be called in three years for a redemption price of $1,016, what is the bond's yield to call? N= PMT= FV= PV= (a) N= PMT= FV= PV= (b)

6-14 Three years ago, Jack's Automotive Jacks issued a 20-year callable bond with a $1,000 maturity value and an 8.5 percent coupon rate of interest. Interest is paid semiannually. The bond is currently selling for $1,046. (a) What is the bond's yield to maturity? (b) If the bond can be called in four years for a redemption price of $1,089, what is the bond's yield to call? N= PMT= FV= PV= (a) N= PMT= FV= PV= (b)

6-15 Quiver Archery's bond currently is selling for $1,006; its value one year ago was $996. The bond has a $1,000 maturity value and a coupon rate equal to 7 percent, and it matures in eight years. Interest is paid annually. Compute (a) the current yield and capital gains yield Quiver's bondholders earned during the year and (b) the bond's yield to maturity today. N= PMT= FV= PV= (a) Capital Gain= Current yield= (b)

6-16 Gabby's Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest in similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond's life. Compute the (a) current yield and (b) capital gains yield that the bond will generate in the third year (Year 3) of its life. (a) (Coupon Interest Rate*Maturity Value)/Previous year bond price (2nd year) = (b) ((Current Year Price-Previous Year Price)/Previous year bond price (2nd year) =

6-17 Dynamic Systems has an outstanding bond that has a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually. The bond has 11 years remaining until it matures. Today the going interest rate is 10 percent, and it is expected to remain at this level for many years in the future. Compute the (a) current yield and (b) capital gains yield that the bond will generate this year. (a) Current yield = Annual coupon payment/current price = (b) Capital gain yield = YTM- Current Yield =

6-18 One year ago, Henderson Honey issued a 10-year bond for $1,000. The bond's coupon rate of interest is 4 percent, and interest is paid annually. If the current value of the bond is $929, what are (a) the current yield and capital gains yield Henderson's bondholders earned during the year and (b) the bond's yield to maturity today? N= PV= FV= PMT = (a) Current Yield = Capital Gains Yield = (b) I=

6-19 Eight years ago, Over-the-Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually). Today the going rate of interest on similar bonds is 6 percent. (a) What is the bond's current value? If the market rate stays at 6 percent for the remainder of the bond's life, what (b) current yield and (c) capital gains yield will bondholders receive during the next two years (i.e., Years 9 and 10)? I= N= PMT= FV= (a) (b) Current Yield= Coupon Payment/Current price of the bond = (c) Capital Gain Yield = ($ of bond in Y#-$ of bond in Y#)/$ of bond in Y# Year 9 = Year 10 =

6-20 Many years ago, Topnotch Knives issued a zero coupon bond with a $1,000 face value. The bond matures in three years. If the current market rate on similar bonds is 11 percent, (a) what is the bond's current value? Suppose the market rate stays at 11 percent for the next years. What (b) current yield and (c) capital gains yield will bondholders receive each year during the remainder of the bond's life? FV= I= N= (a) PV= (b) Current Yield = (Annual interest payment/Current price of bond) Year 1 = Year 2 = Year 3 = (c) Capital gain=(Price at the end of year-Price at beg. of year)/Price at beg. of year Year 1= Total yield = Year 2 = Year 3 =