Reference no: EM132351141

1. Barry's Steroids Company has $1,000 par value bonds outstanding at 13 percent interest. The bonds will mature in 30 years.

If the percent yield to maturity is 11 percent, what percent of the total bond value does the repayment of principal represent? 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. Input your answer as a percent rounded to 2 decimal places.)

Principal as a percentage of bond price _______ %

2. Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 20-year life when issued and the annual interest payment was then 13 percent. This return was in line with the required returns by bondholders at that point as described below:

Real rate of return: 4%

Inflation premium: 5 

Risk premium: 4 

Total return: 13%

Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 15 years remaining until maturity.

New Price of the Bond _______

3. Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 7 percent annual interest and has 16 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent.

a. What is the current price of the bond?

b. By what percent will the price of the bonds increase between now and maturity?