Bond Problem: Use the data provided and answer the following questions. 30 Points

	Bell South	Dole	Xerox
Coupon interest rate	6.375%	7.875%	7.2%
Years to maturity	27	12	11

Bonds par value $1000.

a. Calculate the values of each of the bonds if your required rates of return is 7.2%

From the 5 keys. Fill in the missing pieces. 6 points

Bell South Work: Dole Work: Xerox Work:

FV = ___-$1000____ Pmt = __-$63.75___ N = 27 I/y = 7.2	FV = -1000 Pmt = -78.75 N = 12 I/y = 7.2	FV = -1000 Pmt = __-$72___ N = 11 I/y = ___7.2____
Price = $903	Price = $ _1,053.05____	Price = $_$1,000____

1. If you expect interest rates to go to 5% next year, what happens to the price of the bonds?

A. Interest rates go down and all the prices will go up but some bonds will be discount

bonds and some will be premium bonds.

B. Interest rates go down so that will change all the payments to reflect the 5% rate.

C. Interest rates go down and now all the bonds are premium bonds.

D. Interest rates go down and the investor has capital gains losses.

2. If you expect interest rates to go to 5% next year, which is the true statement?

A. The volatility of the bonds makes Bell South the best choice of bond to invest

in, considering capital gains and if all the bonds are rated AAA.

B. The volatility of the bonds makes Dole the best choice of bond to invest

in, considering capital gains and if all the bonds are rated AAA.

C. The volatility of the bonds makes Xerox the best choice of bond to invest

in, considering capital gains and if all the bonds are rated AAA.

D. Cant tell which will have the greater capital gains.

3. If you expect interest rates to go to 5% next year, which provision could provide the firm with the opportunity to refinance their bonds?

A. the sinking fund

B. the call provision

C. the convertibility provision

D. the preemptive right provision