Reference no: EM132870258

Questions -

Q1. MJI Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semi-annual basis. Assuming there are no changes to interest rates during the course of the year, what are the current yield and capital gains yield on the bonds for this year?

Q2. XYZ Inc. issued 20-yr bonds which pay semi-annual coupons of $60 and is currently selling at $1,000. The firm has decided to raise new funds using bond financing with maturity of 10 years, par value of $1,000 and semi-annual coupons of $80. How many new bonds must XYZ Inc. issue to raise a sum of $10,000,000 in case if we assume that both bonds have the same interest rate. Rounded to the nearest whole number.

3. Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater, less, fall, rise

a. If the current interest rate exceeds the bond's coupon rate, the bond will sell at a ______________.

b. The value of a bond to increase if there is a/an __________________ in interest rates.

c. A bond's coupon rate is more than the interest rate, therefore the bond is selling at a ________________________.

d. As interest rate increases the value of a bond will __________________.

e. If the bondholder's required rate of return equals the coupon interest rate, the bond will sell at __________________.

f. A premium bond sells for ________________ as maturity approaches.

g. The discount bond sells for _______________ as maturity approaches.

h. A bondholder with a short-term bond is exposed to _____________ interest rate risk than when owing a long-term bond.

i. When interest rates ______________, the market required rates of return , and the bond prices will _____________.

j. If interest rates increase after a bond issue, the yield-to-maturity will _____________.