1. A $1,000 bond has a coupon of 9 percent and matures after eight years. Assume that the bond pays interest annually.

1. What would be the bond's price if comparable debt yields 10 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

   $

2. What would be the price if comparable debt yields 10 percent and the bond matures after four years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

   $

3. Why are the prices different in a and b? The price of the bond in a is -Select-lessgreaterItem 3 than the price of the bond in b as the principal payment of the bond in a is -Select-further outcloserItem 4 than the principal payment of the bond in b (in time).

4. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places.

   The bond matures after eight years:

   CY: % YTM: %

   The bond matures after four years:

   CY: % YTM: %

2. a.A $1,000 bond has a 8.5 percent coupon and matures after eleven years. If current interest rates are 10 percent, what should be the price of the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$

1. If after six years interest rates are still 10 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar.

   $

2. Even though interest rates did not change in a and b, why did the price of the bond change?

   The price of the bond with the longer term is -Select-lesshigherItem 3 than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigherItem 4 interest payments and receive the principal within a longer period of time.

3. Change the interest rate in a and b to 8 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.

   Price of the bond (eleven years to maturity): $ Price of the bond (five years to maturity): $

   Even though the interest rate is 8 percent in both calculations, why are the bond prices different?

   The price of the bond with the longer term is -Select-lesshigherItem 7 than the price of the bond with the shorter term as the investors will collect the -Select-smallerhigherItem 8 interest payments for a longer period of time.

3. A bond with 15 years to maturity has an annual interest payment of $70. If the bond sells for its par value, what are the bond's current yield and yield to maturity? Round your answers to two decimal places.

CY: %

YTM: %

4. Carrie's Clothes, Inc. has a six-year bond outstanding that pays $50 annually. The face value of each bond is $1,000, and the bond sells for $870.

1. What is the bond's coupon rate? Round your answer to two decimal places.

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2. What is the current yield? Round your answer to two decimal places.

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3. What is the yield to maturity? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest whole number.

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5. Charlotte's Clothing issued a 7 percent bond with a maturity date of 16 years. Six years have passed and the bond is selling for $870. Assume that the bond pays interest annually.

1. What is the current yield? Round your answer to two decimal places.

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2. What is the yield to maturity? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest whole number.

   %

3. If five years later the yield to maturity is 9 percent, what will be the price of the bond? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

   $

6. Your broker offers to sell for $1,140 a AAA-rated bond with a coupon rate of 6 percent and a maturity of seven years. Given that the interest rate on comparable debt is 4 percent, calculate the bond's price. Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$

Is your broker fairly pricing the bond?

-Select-YesNoItem 2 , so the bond -Select-shouldshould notItem 3 be purchased.

7. Five years ago your grandfather purchased for you a 20-year $1,000 bond with a coupon rate of 9 percent. You now wish to sell the bond and read that yields are 8 percent. What price should you receive for the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$

8. Bond A has the following terms:

• Coupon rate of interest (paid annually): 12 percent
• Principal: $1,000
• Term to maturity: Ten years

Bond B has the following terms:

• Coupon rate of interest (paid annually): 6 percent
• Principal: $1,000
• Term to maturity: Ten years

1. What should be the price of each bond if interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. Price of bond A: $ Price of bond B: $

2. What will be the price of each bond if, after three years have elapsed, interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. Price of bond A: $ Price of bond B: $

3. What will be the price of each bond if, after ten years have elapsed, interest rate is 11 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. Price of bond A: $ Price of bond B: $

9. A bond has the following features:

• Coupon rate of interest (paid annually): 5 percent
• Principal: $1,000
• Term to maturity: 11 years

1. What will the holder receive when the bond matures?

   -Select-PrincipalAll coupon paymentsItem 1

2. If the current rate of interest on comparable debt is 7 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

   $

   Would you expect the firm to call this bond? Why?

   -Select-YesNoItem 3 , since the bond is selling for a -Select-discountpremiumItem 4 .

3. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for eleven years if the funds earn 7 percent annually and there is $90 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar.

   $

10. You are given the following information concerning a noncallable, sinking fund debenture:

• Principal: $1,000
• Coupon rate of interest: 7 percent
• Term to maturity: 14 years
• Sinking fund: 3 percent of outstanding bonds retired annually; the balance at maturity

1. If you buy the bond today at its face amount and interest rates rise to 11 percent after three years have passed, what is your capital gain or loss? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Use a minus sign to enter the loss amount, if any, as a negative value. Round your answer to the nearest dollar.

   $

2. If you hold the bond 14 years, what do you receive at maturity?

   -Select-PrincipalAll coupon paymentsItem 2

3. What is the bond's current yield as of right now? Round your answer to the nearest whole number.

   %

4. Given your price in a, what is the yield at maturity? Round your answer to the nearest whole number.

   %

5. What proportion of the total debt issue is retired by the sinking fund? Round your answer to the nearest whole number.

   %

6. If the final payment to retire this bond is $1,200,000, how much must the firm invest annually to accumulate this sum if the firm is able to earn 7 percent on the invested funds? Use Appendix C to answer the question. Round your answer to the nearest dollar.

   $