Occidental Petroleum has $1,000 par value bonds that are currently trading at $950. The bonds were...
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Occidental Petroleum has $1,000 par value bonds that are currently trading at $950. The bonds were issued with a coupon rate of 5% and paid semi-annually. The bonds will mature in 10 years. The current yield on similar bonds is at 7% a) What is the present value of the bond? (3 points) b) Should an investor buy the bonds at the current $950 price? Why or why not? (3 points) c) Assume that the firm's credit rating is upgraded from BBB to A. What should happen to the price of the bond assuming all other variables remain constant? What should happen to the yield (I/Y)? (2 points) d) In 5 years time, assuming all else remains constant, should the bond price trade further from par value or closer? Occidental Petroleum has $1,000 par value bonds that are currently trading at $950. The bonds were issued with a coupon rate of 5% and paid semi-annually. The bonds will mature in 10 years. The current yield on similar bonds is at 7% a) What is the present value of the bond? (3 points) b) Should an investor buy the bonds at the current $950 price? Why or why not? (3 points) c) Assume that the firm's credit rating is upgraded from BBB to A. What should happen to the price of the bond assuming all other variables remain constant? What should happen to the yield (I/Y)? (2 points) d) In 5 years time, assuming all else remains constant, should the bond price trade further from par value or closer?
Expert Answer:
Answer rating: 100% (QA)
a To calculate the present value of the bond we need to calculate the present value of the future coupon payments and the present value of the maturit... View the full answer
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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