Compute the bond yield to maturity

Reference no: EM132286725

Principles of Finance Assignment Questions -

Question 1 - Floating-rate loans

The Bensington Glass Company entered into a loan agreement with the firm's bank to finance the firm's working capital. The loan called for a floating rate that was 28 basis points (0.28 percent) over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of 2.23 percent and a minimum of 1.74 percent. Calculate the rate of interest for weeks 2 through 10.

Date	LIBOR
Week 1	1.99%
Week 2	1.62%
Week 3	1.52%
Week 4	1.35%
Week 5	1.63%
Week 6	1.68%
Week 7	1.71%
Week 8	1.91%
Week 9	1.91%

Question 2 - Bond valuation

Calculate the value of a bond that matures in 11 years and has a $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable risk bond is 13 percent.

Question 3 - Bond valuation

A bond that matures in 10 years has a $1,000 par value. The annual coupon interest rate is 12 percent and the market's required yield to maturity on a comparable-risk bond is 17 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?

Question 4 - Bond valuation

Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 8 percent. Their par value will be $1 comma 000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either an A or a AA rating?

Question 5 - Yield to maturity

The market price is $1,200 for a 12-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity?

Question 6 - Bond valuation

Doisneau 23-year bonds have an annual coupon interest of 14 percent, make interest payments on a semiannual basis, and have a $1,000 par value. If the bonds are trading with a market's required yield to maturity of 18 percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds?

a. If the bonds are trading with a yield to maturity of 18% then

A. the bonds should be selling at par because the bond's coupon rate is equal to the yield to maturity of similar bonds.

B. the bonds should be selling at a discount because the bond's coupon rate is less than the yield to maturity of similar bonds.

C. there is not enough information to judge the value of the bonds.

D. the bonds should be selling at a premium because the bond's coupon rate is greater than the yield to maturity of similar bonds.

Question 7 - Bond valuation

Fingen's 18-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $850 and the market's required yield to maturity on a comparable-risk bond is 11 percent.

a. Compute the bond's yield to maturity.

b. Determine the value of the bond to you, given your required rate of return.

c. Should you purchase the bond?

Question 8 - Yield to maturity

Abner Corporation's bonds mature in 18 years and pay 12 percent interest annually. If you purchase the bonds for $875, what is your yield to maturity?

Question 9 - Bond valuation

The 7-year $1,000 par bonds of Vail Inc. pay 11 percent interest. The market's required yield to maturity on a comparable-risk bond is 8 percent. The current market price for the bond is $1,090.

a. Determine the yield to maturity.

b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond?

c. Should you purchase the bond at the current market price?

Question 10 - Yield to maturity

The Saleemi Corporation's $1,000 bonds pay 11 percent interest annually and have 15 years until maturity. You can purchase the bond for $895.

a. What is the yield to maturity on this bond?

b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 14 percent?

Question 11 - Bond valuation relationships

The 19-year, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is $1,055, and the market's required yield to maturity on a comparable-risk bond is 6 percent.

a. Compute the bond's yield to maturity.

b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond.

c. Should you purchase the bond?

Question 12 - Inflation and interest rates

What would you expect the nominal rate of interest to be if the real rate is 3.7 percent and the expected inflation rate is 6.7 percent?

Reference no: EM132286725

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