Compute the new price of the bond.

Assignment Help Financial Management

Reference no: EM131883620

1. Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of course is also the amount of principal to be paid at maturity. The bonds are currently selling for $750. They have 10 years remaining to maturity.

The annual interest payment is 13 percent ($130). Compute the yield to maturity. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Yield to maturity: %

2. Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 15 percent. This return was in line with the required returns by bondholders at that point as described below:

Real rate of return	5	%
Inflation premium	6
Risk premium	4
Total return	15	%

Assume that five years later the inflation premium is only 2 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 years remaining until maturity.

Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

(Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

New price of the bond:

Reference no: EM131883620

Questions Cloud

Explain conceptually how bonds are priced : What is a bond? Explain conceptually how bonds are priced. Can bond prices be affected by interest rate? Why?

What rate of return did joe receive on his investment : Joe bought a vacation lot for $5000 down and monthly payments of $250. After 40 months he sold the lot. What rate of return did Joe receive on his investment?

How much money will you have on the date of your retirement : Your job pays you only once a year for all the work you did. How much money will you have on the date of your retirement 35 years from today?

How long will it take you to pay off your card : If you invest $1000 today, how much will you have in 15 years if your 15-year Certificate of Deposit (CD) pays 5% annual interest, compounded monthly?

Compute the new price of the bond. : Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer.

What is the joes recognized gain : Joe England sold equipment on May 10, 2014 for $180,000. He bought the equipment on November 7, 2012. What is Joe's recognized gain in 204 and 2015?

What is its profit margin : A firm has assets of $1,800,000 and turns over its assets 2.5 times per year. Return on assets is 20 percent. What is its profit margin ?

How much income will joey co recognize : Joey Co. leased equipment to Legoria Co. on April 1 2017. The first of eight equal annual payments of $175,000. How much income will Joey Co. recognize in 2017?

How much will she have at the end of four years : If she has $7,000 to invest, how much will she have at the end of four years?

User Account

All Pages