Question
1. Abond with face value of $1,000 and a 7.25% coupon matures in 5 years and is currently selling at 109. Your discount rate is
1. Abond with face value of $1,000 and a 7.25% coupon matures in 5 years and is currently selling at 109. Your discount rate is 8%. Determine the value of the bond to you.Show answer to 2-decimal point. Based on your answer to question 1 Should you invest in/buy the bond?
2. The bond referred to above is rated A by Standard & Poor's (S&P). Assume that S&P changed the bond rating to AA. What effect would that likely have on each of the following? "increase," "decrease," or "will not change." The coupon rate of interest on the bond?
3. A bond with $1,000 face value is currently selling in the market for $955. If the bond's coupon interest rate is 7.25%, What amount of annual interest must the issuing corporation pay to a bondholder whose discount rate is 9%? Show answer to2-decimal points [XX.XX]
4. Assume that Snizers Inc. has an issue of 12-year $1,000 par value bonds that pay 7% interest, semi-annually. Further assume that today's required rate of return (or current market interest rate) on these bonds is 5%. How much would these bonds sell for today?Show answer to 2-decimal places
Step by Step Solution
There are 3 Steps involved in it
Step: 1
1 To determine the value of the bond we need to calculate the present value of its cash flows The bond has a face value of 1000 a coupon rate of 725 a ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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