Problem 6-5 Bond Pricing (LO1, 2)

A General Power bond carries a coupon rate of 8.5%, has 9 years until maturity, and sells at a yield to maturity of 7.5%. (Assume annual interest payments.)

a. What interest payments do bondholders receive each year?

b. At what price does the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What will happen to the bond price if the yield to maturity falls to 6.5%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. If the yield to maturity falls to 6.5%, will the current yield be less, or more, than the yield to maturity?

a.	Interest payments
b.	Price
c.	Price will		by.
d.	Current yield is		than yield to maturity. .

Problem 6-6 Bond Yields (LO1, 2)

A bond with a face value of $1,000 has 12 years until maturity, has a coupon rate of 7.4%, and sells for $1,107.

a. What is the current yield on the bond? (Enter your answer as a percent rounded to 2 decimal places.)

Current yield.

%

b. What is the yield to maturity if interest is paid once a year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.)

Yield to maturity

%

c. What is the yield to maturity if interest is paid semiannually? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.)

Yield to maturity

%

Problem 6-7 Bond Prices and Returns (LO2)

One bond has a coupon rate of 7.2%, another a coupon rate of 8.6%. Both bonds pay interest annually, have 14-year maturities, and sell at a yield to maturity of 8.0%.

a. If their yields to maturity next year are still 8.0%, what is the rate of return on each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

	Bond 1		Bond 2
Rate of return		%		%

b. Does the higher-coupon bond give a higher rate of return over this period?

• Yes

• No

Problem 6-9 Coupon Rate (LO2)

General Matters outstanding bond issue has a coupon rate of 9.4%, and it sells at a yield to maturity of 7.80%. The firm wishes to issue additional bonds to the public. What coupon rate must the new bonds offer in order to sell at face value? (Enter your answer as a percent rounded to 2 decimal places.)

Coupon rate

%