How much should you be willing to pay for bond today

Assignment Help Financial Management
Reference no: EM131584602

Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yield to maturity on a 15-year bond with similar risk will be 11.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Round your answer to the nearest cent.

Reference no: EM131584602

Questions Cloud

What is the largest cycle in any graph shown in figures : Find the longest possible path in the middle graph of Figure - Three graphs, and in the left-hand graph.
Discuss five strategic options for establishing a presence : Discuss the five strategic options for establishing a competitive presence in foreign markets as stated in the textbook and then share which option you believe.
What is the bond current market price : What is the bond's current market price?
Define and explain ethics and ethical reasoning : Define and explain ethics and ethical reasoning. Discuss the role of the negotiation team. Discuss the pros and cons of negotiation teams.
How much should you be willing to pay for bond today : Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. How much should you be willing to pay for Bond X today?
Suggest an additional journal entry to other student stories : Accounting cycle. Journal entries are the way we communicate the activities of a business. Suggest an additional journal entry to other student's stories
What is expected capital gains yield and yield to maturity : Hooper Printing Inc. has bonds outstanding with 10 years left to maturity. What is the yield to maturity? what is the expected capital gains yield?
Was the placement obvious and how did it tie-in to the story : Was the placement obvious? How did it tie-in to the story? What was the benefit to the business selling the product and the movie or television show by placing?
Higher the debt ratio-more the financial leverage firm : Higher the debt ratio, more the financial leverage a firm has and thus, the greater will be its risk and return.

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate component weights of capital

Weighted average cost of capital) As a consultant to GBH Skiwear, you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. Calculate component weights of capital: What is the w..

  Find the number of shares outstanding

Okazaki Company has $40 million face value zero-coupon bonds due in 9.5 years, and its σ is 0.371. The total market value of Okazaki Company is $230 million and the riskless rate is 2.9%. The stock of the company sells at $32 per share. Find the numb..

  How many kronas would dollar buy tomorrow

how many kronas would a dollar buy tomorrow?

  Eliminate the exporters exchange rate risk

An American exporter has just sold €100,000 worth of shoes to a French customer. Payment is due in one year. Interest rates in dollars are 7.10 percent in the U.S. and 5 percent in the euro zone. The spot exchange rate is $1.25/€1.00. Use a money mar..

  What monthly payment will the taylors be required to make

what monthly payment will the Taylors be required to make?

  What will the new stock price be after the stock dividend

Ted Tech Inc. is offering a 10% stock dividend. The firm currently has 200,000 shares outstanding and after-tax profits of $800,000. The current price of the stock is $48. a. Calculate the new earnings per share. b. What is the original price/earning..

  Save money to meet three objectives

Bilbo Baggins wants to save money to meet three objectives. how much will he have to save each month in years 11 through 30?

  The relationship between NPV and IRR

The relationship between NPV and IRR is such that:

  Covered interest arbitrage opportunity

Suppose that you’re a FX trader for a bank in New York. You are faced with the following market rates: Is there a Covered Interest Arbitrage opportunity (CIA)? Explain why or why not.

  About the standard deviation

The Knight and Day Café is contemplating making a $125,000 investment that has a 45% chance of producing a 8% return, a 25% chance of producing an 11% return, a 15% chance of producing a 15% return, a 10% chance of producing a 5% return, and a 5 % ch..

  Started a business mowing lawns for churches

Four years ago, Errol bought an industrial-grade lawn mower and started a business mowing lawns for churches, parks, and other local greenspaces

  What should be the value of the put

A put option on a stock with a current price of $36 has an exercise price of $38. The price of the corresponding call option is $2.70. According to put-call parity, if the effective annual risk-free rate of interest is 6% and there are four months un..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd