Question on Bonds Valuation

Question 1

Callaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 8%, and the yield to maturity is 9%. What is the bond’s current market price?  Answer : $935.44

Question 2

A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985. (a) what is its yield to maturity (YTM) (b) assume that the YTM remains constant for the next 3 years. What will the price be 3 years from today? Answer ; (a) 7.20% (b) $982.94

Question 3

Six years ago the Sutera Company issued 20 year bonds with a 14% annual coupon rate at their par value. The bonds had a 9% call premium, with 5 years of call protection. Today, Sutera called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Explain why the investor should or should not be happy that Sutera called them. YTC =11.96%

Question 4  

Syaza Printing Inc. has bonds outstanding woth 9 years lft to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value. However, due to changes in interest rate the bonds market price has fallen to $901. 40. The capital gains yield last year was -9.86%.

(a)  What is YTM?

(b)  For the coming year, what are the expected current and capital gains yields?

(c)   Will the actual realized yield be equal to the expected yields if interest rates change? If not, how will they differ?

Question 5  

You are considering a 10 year, bond at par value. Its coupon rates are 9% and interest rate is paid semiannually. If you require an ‘effective’ annual interest rate (not a nominal rate) of 8.16%, how much should you be willing to pay for the bond?

  

Question 6

Consider a bond, maturing in 10 years and having a coupon rate of 8 percent. The par value is $1,000. Investors consider 10 percent to be an appropriate required rate of return in view of the risk level associated with this bond. The annual interest payment is $80. What is the present value of this bond?

 Answer : $877.07

Question 7

The yield to maturity of a $1,000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semi annually. What must its price be?

Question 8

Suppose a ten year, $1,000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1,034.74.

1. What is the bond’s yield to maturity (expressed as an APR, with semiannual compounding)?
2. If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be?

Question 9

Suppose you purchase a ten year bond with 6% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturity was 5% when you purchased and sold the bond,

1. What cash flows will you pay and receive from your investment in the bond per $100 face value?
2. What is the internal rate of return of your investment?

Question 10

Hassan Industries bond has a 10 percent coupon rate and a $1,000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12 percent yield, what is the bond’s value? What is the effective annual yield on the bond?

Answer : bond value = $849.54, EAR = 12.36%

 Question 11

A MegaSuci Corporation bond carries an 8 percent coupon, paid semiannually. The par value is $1,000 and the bond matures in six years. If the bond currently sells for $911. 37, what is its yield to maturity? What is the effective annual yield?

Answer : bond value = $832.32 , EAR = 10.25%