Question
1a. (Bond term) Young Peer Inc. is issuing bonds with the following terms: $1000 face value, 10%annual coupon rate, and a market discount rate of
1a. (Bond term) Young Peer Inc. is issuing bonds with the following terms: $1000 face value, 10%annual coupon rate, and a market discount rate of 8%. If it is priced at $1225.16, how long should Young Peer's bond term last until maturity (in years)?
b. (Yield to maturity) You are considering buying a 15 year semi-annual bond with a $1000 face value, 12% coupon rate, and a price 82.5% of face value. What rate of rate of return will this bond give you?
c. (Yield to maturity) Pincushion Corp. issues bonds with a 10% semi-annual coupon rate and a 10- year term. What is their yield to maturity on the bonds if they are sold at $800?
d. (Bondholder's expected rate of return) Joel Silverton's Inc. is selling bonds for $700. It has an 8% coupon rate and makes payments semi-annually. The bond matures in 25 years. What is the bond's expected rate of return?
e. (Duration) How much will a bond with a duration of 4 and worth $900 change in price if the YTM increases by 2%?
f. (Bond valuation) Thumb Juice Corp.'s 15-year, $1,000 par value bonds pay 12% interest annually. The market price of the bonds is $1,062.20 and your required rate of return is 10%. a. Compute the bond's market expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase this bond? Why or why not?
For number 1a, I got 58.55210 years, but I am not sure I am typing the correct signs for cash inflow and outflow into my calculator. I also get stuck on how to find the rate of return and yield to maturity. for c, I calculated 13.74 annually, but I'm not sure if that's correct. For e I got $72, and for f, I think the interest rate should be 11.13. I would love help working through each step of this.
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