1. ABC Corporation has bonds outstanding with the following characteristics:

Par value $1000

Coupon rate 12% per year

Coupon payment schedule semiannual

Maturity 6 years.

A. If your required rate of return is 10% per year, compounded semiannually, what is the value of the bond?

B. Assume a market price of $1150 for the ABC bond. At this price, calculate the bonds yield-to-maturity.

2. Refer to the bond and your calculations from problem #1.

A. Is the value of the bond greater than par value or equal to par value or less than par value? Why?

B. Is the bonds yield-to-maturity greater than the required rate of return or equal to the required rate of return or less than the required rate of return? Why?

3. REC Industries has bonds outstanding with the following characteristics:

Par value $1000

Coupon rate 8% per year

Coupon payment schedule semiannual

Maturity 5 years.

A. If your required rate of return is 9% per year, compounded semiannually, what is the value of the bond?

B. Assume a market price of $890 for the REC Industries bond. At this price, calculate the bonds yield-to-maturity.

4. Refer to the bond and your calculations from problem #3.

A. Is the value of the bond greater than par value or equal to par value or less than par value? Why?

B. Is the bonds yield-to-maturity greater than the required rate of return or equal to the required rate of return or less than the required rate of return? Why?