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7.1 BOND VALUATION Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest

7.1 BOND VALUATION Madsen Motors'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 PRICEA 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?

7.3 BOND VALUATIONNe smith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond's price?

7.4YIELD TO MATURITYA firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a price of $1,283.09. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds?

7.5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year.

a. What will the value of each bond be if the going interest rate is 6%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L.

b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

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 called them.

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