Compute the bond''s expected rate of return

Assignment Help Business Management

Reference no: EM13720743

You own a 20-year,$1,000 par value bond paying 7.5 percent interest annually. The market price of the bond is $825, and your required rate of return is 11 percent.

a. Compute the bond's expected rate of return.

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

c. Should you sell the bond or continue to own it?

Reference no: EM13720743

Questions Cloud

What is the change in operating cost : Firm A is considering replacing an old machine it purchased 4 years ago. At the time, the machine cost $200,000, with an estimated life of 9 years. Straight line depreciation. Salvage value = $20,000. The selling price is estimated to be $10,000 at t..

Types of legal and ethical problems : Chuck House was the Facilities Director at the headquarters of Hospital Corporation of America (HCA) for 25 years before taking early retirement in 2012.

What constant rate does owner believe that profits will grow : You’ve recently learned that the company where you work is being sold for $380,000. The company’s income statement indicates current profits of $15,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” in..

Analyze company layout based on study : How is the facility arranged? you should gather different photos for your company layout such as: office, warehouse, retail layout etc. and analyze their layout based on what we learnt in class.

Compute the bond''s expected rate of return : You own a 20-year,$1,000 par value bond paying 7.5 percent interest annually. The market price of the bond is $825, and your required rate of return is 11 percent. Compute the bond's expected rate of return.

What is this firms debt-equity ratio : Jiminy Cricket Removal has a profit margin of 11 percent, total asset turnover of 1.13, and ROE of 14.33 percent. What is this firm’s debt-equity ratio?

What is the present value of the annuity : A 13-year annuity pays $3,400 per month, and payments are made at the end of each month. The interest rate is 8 percent compounded monthly for the first eight years, and 6 percent compounded monthly thereafter. Required: What is the present value of ..

Should the investory be happy calling the bond : Yield to Call: Five yrs ago, company A, issued 20 yrs bonds with a 12% annual coupon rate at their $1,000 par value. The bonds had 5 yrs of call protection and an 8% call premium. Yesterday, company A called the bonds. What is the realized rate of re..

Bond valuation and two bonds : Bond Valuation: Two bonds. Each bond has a face value of $1,000 and pays an 8% annual coupon. Bond X matures in 1 year and Bond Y matures 15 years. If the going interest rate is 4%, 9%, and 14%, what will the value of each bond be? Assume Box X only ..

User Account

All Pages