Finance Management Chapter 5 - FIN 780

A bond with a 7% coupon that pays interest semi-annually and is priced at par will have a market price of ___ and interest payments in the amount of ___ each.

$1000; $35

The bonds issued by Jensen & Son bear a 5% coupon, payable semiannually. The bond matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity?

5.00% If bond sells at par, the yield to maturity is the coupon rate.

The Lo Sun Corporation offers a 6% bond with a current market price of $875.05. The yield to maturity is 7.35%. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures?

I/Y = 7.34/2 PV = -875.05 PMT = (1,000x6%)/2 FV = 1,000 CPT N = 32/2 = 16 years

A year ago, Jasper Inc. sold 20-year bonds at par with a coupon rate of 4.5% and semiannual payments. The face value of each bond is $1,000 and the yield to maturity is now 5.6%. What is the current value of each bond?

N = (20-1)x2 I/Y = 5.6/2 PMT = (1,000x4.5%)/2 FV = 1,000 CPT PV = $872.35

Wine and Roses, Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 10 years. What is the market price of a $1,000 face value bond?

N = 10x2 I/Y = 7.73/2 PMT = (1,000x7%)/2 FV = 1,000 CPT PV = $949.80

Party Time, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

N = 11x2 I/Y = 12.9/2 PMT = (1,000x6%)/2 FV = 1,000 CPT PV = $600.34

Winston Enterprises has a 15-year bond issue outstanding that pays 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

N = 15x2 PV = -894.60 PMT = ($1,000x9%)/2 FV = 1,000 CPT I/Y = 5.21468...x2 = 10.40%

A General Co. bond has an 8% coupon and pays interest annually. The face value is $1000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

N = 20 PV = -1,020.50 PMT = (1,000x8%) FV = 1,000 CPT I/Y = 7.79%

The value of a 20 year zero-coupon bond with a $1,000 face value when the market required rate of return is 8% (semiannual) is ___.

N = 20x2 I/Y = 8/2 FV = 1,000 CPT PV = $208.29

Consider a bond which pays 7% semiannually and has 8 years to maturity. The market requires an interest rate of 8% on bonds of this risk. What is this bond's price?

N = 8x2 I/Y = 8/2 PMT = (1,000x7%)/2 FV = 1,000 CPT PV = $941.74