7-1 BOND VALUATION

Madsen Motor's bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9%; and the yield to maturity is 11%. What is the bond's current market price?

7-2 YIELD TO MATURITY AND FUTURE PRICE

A bond has a $1,000 par value, 12 years to maturity, and an 8% annual coupon and sells for $980.

a. What is its yield to maturity (YTM)?

b. Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today?

7-8 YIELD TO CALL

Seven years ago, the Templeton Company issued 20-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 7.5% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Explain why the investor should or should not be happy that Templeton calledthem.