FIN 3000: Ch 7 Homework

Genova Corporation has a four year 10% annual coupon bond. The price of the bond is $956.12. The Yield to Maturity is 11.43%. What is the current yield on this bond?

10.46%

Warren Corporation is interested in a three-year, 11% annual coupon bond. A broker quotes a price of $930.35. What is the yield to Maturity?

14%

Lochmere Corporation is evaluating a taxable bond at 7% and a municipal bond at 5.75%. What is the break-even tax rate?

18%

The term structure of interest rates includes all of the following basic components, except:

Weighted Average Cost of Capital

Ashburn Corporation issued 20-year bonds two years ago at a coupon rate of 8.3 percent. The bonds make semiannual payments. If these bonds currently sell for 104 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM: 7.94%

Roadside Markets has 8.82 percent coupon bonds outstanding that mature in 11.5 years. The bonds pay interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.9 percent?

$1,150.72

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:

$1,150.72

Oil Wells offers 5.75 percent coupon bonds with semiannual payments and a yield to maturity of 6.34 percent. The bonds mature in 8 years. What is the market price per bond if the face value is $1,000?

$963.42

You own a bond that pays $62 in interest annually. The face value is $1,000 and the current market price is $1,034.14. The bond matures in 10 years. What is the yield to maturity?

5.74 percent

Franklin Corporation has an opportunity to purchase bonds at a rate of 11%. They are in the 34% tax bracket. What is the after tax yield on these bonds?

7.26%

Redesigned Computers has 6.2 percent coupon bonds outstanding with a current market price of $604. The yield to maturity is 14.4 percent and the face value is $1,000. Interest is paid annually. How many years is it until these bonds mature?

8.84 years

Kaiser Industries has bonds on the market making annual payments, with 12 years to maturity, a par value of $1,000, and a current price of $1,142.60. At this price, the bonds yield 7.2 percent. What is the coupon rate?

9.01 percent

Yan Yan Corporation has a $4,000 par value bond outstanding with a coupon rate of 5.2 percent paid semiannually and 26 years to maturity. The yield to maturity on this bond is 5.8 percent. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Bond Price: $3,680.49

Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate on the bond? What is the YTM on the bond?

Coupon rate: 10% YTM: 8%

Nikita Enterprises has bonds on the market making annual payments, with seven years to maturity, a par value of $1,000, and selling for $986. At this price, the bonds yield 7.8 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Coupon rate= 7.53%

Westco Company issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.8 percent, what is the current bond price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current bond price: $1,137.94

When short-term rates are higher than long-term rates, we say it is __________________.

Downward sloping.

Current Yield is the bond's annual coupon divided by its yield to maturity.

False

Municipal bonds are taxable for federal, state and local taxes.

False

The term structure of interest rates tells us what _________ interest rate are on default-free, pure discount bonds of all maturities.

Nominal

A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 6.2 percent paid annually and matures in 18 years. What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Yield to maturity = 6.69%

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment.

coupon

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 7.7 percent paid annually. If the yield to maturity is 8.8 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

current price: €910.28

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:

face value.

A bond's principal is repaid on the ________ date.

maturity

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:

yield to maturity.