Reference no: EM132420227

1) BOND VALUATION Callaghan Motors's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8%; and the yield to maturity is 9%. What is the bond's current market priCE?

2) YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985.

• What is its yield to maturity (YTM)?
• Assume that the yield to maturity remains constant for the next three years. What willthe price be 3 years from today?

3)BOND VALUATION Nungesser Corporation's outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 8 years to maturity, and an 8 5% YTM. What is the bond's price?

4 )YIELD TO MATURITY A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,050, and currently sell at a price of $1,100. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds?

5) BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.

• What will the value of each bond be if the going interest rate is 5%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L.
• Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

6) YIELD TO CALL Six years ago the Singleton Company issued 20-year bonds with a 14% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Explain why the investor should or should not be happy that Singleton called them.

7) YIELD TO MATURITY Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%.

1. What is the yield to maturity at a current market price of (1) $829 and (2) $1,104?
2. Would you pay $829 for each bond if you thought that a "fair" market interest rate for
3. such bonds was 12%-that is, if rd 12%? Explain answer.

8) CURRENT YIELD, CAPITAL GAINS YIELD, AND YIELD TO MATURITY Hooper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $901 40. The capital gains yield last year was -9 86%.

1. What is the yield to maturity?
2. For the coming year, what are the expected current and capital gains yields? (Hint:
3. Refer to footnote 7 for the definition of the current yield and to Table 7.1.)
4. Will the actual realized yields be equal to the expected yields if interest rates change? If
5. not, how will they differ?