6 and 8

The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-year maturity. 6. Using an assumption of semiannual interest payments: a. Compute the price of a bond (refer to "Semiannual Interest and Bon Prices" in Chapter 10 for review if necessary). Compute the total value of the 58 bonds. Cox Media Corporation pays an 11 percent coupon rate on debentures that are due in 10 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,110. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds a. Find the market value of the bonds using semiannual analysis. b. Do you think the bonds will sell for the price you arrived at in part a? Why? The yield to maturity for 10-year bonds is as follows for four different bond rat- ing categories: b. 7. ng 8. Aaa 9.40% Aa2 10.00% Aa1 9.60% Aa3 10.60% The bonds of Falter Corporation were rated as Aaa and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determine the new price of the bonds, assuming a 10-year maturity and semiannual interest pay- ments. (Refer to "Semiannual Interest and Bond Prices" in Chapter 10 fora review if necessary.) Twenty-five-year B-rated bonds of Parker Optical Company were initially 9