Expected rate of return-bond valuation

Assignment Help Financial Management

Reference no: EM13948575

EXPECTED RATE OF RETURN

(A) Holiday Hiatus, a luxury vacation rental company, issued 15 year bonds to raise the capital needed to construct a five-star, all-inclusive tropical resort on the island of Bermuda. Those bonds are selling in the open market for $1,405, a premium in excess of their $1,000 par value, paying 7% interest annually. If the bonds are purchased at the market price, what is the expected rate of return?

BOND VALUATION

(B) Caiphus Inc. bonds have a six percent coupon rate. The interest is paid semiannually, and the bonds mature in eight years. Their par value is one thousand dollars. If the investor's required rate of return is four percent, what is the value of the bond? What is the value of the bond if the interest were to be paid annually instead of semiannually?

YIELD TO MATURITY

(C) You own a 10 year bond that pays 6% interest annually. The par value is $1,000 and the market price is $970. What is the yield to maturity of the bond?

Reference no: EM13948575

Questions Cloud

What is the current market value of the stock : Test Sales, Inc. (TSI) just paid a common stock dividend of $2.50 per share. Its sales are expected to grow at a rate of 20% for the years 1 to 3, at 16% for years 4 and 5, and at 6% per year indefinitely thereafter. Dividend growth is expected to ma..

The discounted free cash flow model : The Discounted Free Cash Flow Model for Total Equity Initial capital investment = $5,000,000 and NWC Investment = $500,000 Barking Dog Corporation Years Ending December 31 First Year

Define the various capital budgeting methods : Define the various capital budgeting methods such as net present value (NPV), internal rate of return (IRR), and so on, and explain how they differ from one another. Identify which, if any, of the methods discussed might be superior to the others and..

Find the amount of rent that end of each year to break even : David Beckham has bought a house for $250,000, of which $50,000 is the value of the land. Beckham expects that the value of the property will increase at the compound rate of 4% per year. He will rent the house for the next five years and then sell i..

Expected rate of return-bond valuation : Holiday Hiatus, a luxury vacation rental company, issued 15 year bonds to raise the capital needed to construct a five-star, all-inclusive tropical resort on the island of Bermuda. Those bonds are selling in the open market for $1,405, a premium in ..

Normally distributed with an average historical return : Assume that annual returns on small-company stocks are normally distributed with an average historical return of 17.1% and a standard deviation of 32.6%. What is the probability that annual return on small-company stocks is positive?

Used regularly as valuation metric : P/E ratio is used regularly as a valuation metric and you will often hear it discussed in the business news media (i.e. CNBC, Bloomberg, Fox Business, etc). You have just had the opportunity to apply P/E in a relatively easy assignment. Based on this..

Single payoff at the end of year : A project has an initial outlay of $2,043. It has a single payoff at the end of year 3 of $7,083. What is the net present value (NPV) of the project if the company’s cost of capital is 8.30 percent?

Transfers from marketable securities to cash : Barenbaum Industries projects that cash outlays of $4.5 million will occur uniformly throughout the year. Barenbaum plans to meet its cash requirements by periodically selling marketable securities from its portfolio. Use the Baumol model to determin..

User Account

All Pages