HMK Enterprises would like to raise $13 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1,000 and a coupon rate of 11.2% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings. Rating YTM (%) AAA 10.7 AA 10.9 A 11.2 BBB 11.4 BB 12.0 a. Assuming the bonds will be rated AA, what will the price of the AA-rated bonds be? b. How much total principal amount of these bonds must HMK issue to raise $13 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume all fractions are rounded to the nearest whole number.) c. What must the rating of the bonds be for them to sell at par? d. Suppose that when the bonds are issued, the price of each bond is $971.16. What is the likely rating of the bonds? Are they junk bonds? Note: Assume annual compounding. a. Assuming the bonds will be rated AA, what will the price of the AA-rated bonds be? The price of the bonds will be $ (Round to the nearest cent.) ... b. How much total principal amount of these bonds must HMK issue to raise $13 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume all fractions are rounded to the nearest whole number.) Total principal necessary to raise $13 million is $ (Round to the nearest dollar.) c. What must the rating of the bonds be for them to sell at par? (Select the best choice below.) A. A B. AA C. AAA Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity Zero-Coupon YTM 1 year 4.70% 2 years 5.00% 3 years 5.30% 4 years 5.60% 5 years 5.70% Consider a four-year, default-free security with annual coupon payments and a face value of $1,000 that is issued at par. What is the coupon rate of this bond? The par coupon rate is %. (Do not round until the final answer. Then round to two decimal places.) Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 7%. You hold the bond for five years before selling it. a. If the bond's yield to maturity is 7% when you sell it, what is the internal rate of return of your investment? b. If the bond's yield to maturity is 8% when you sell it, what is the internal rate of return of your investment? c. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment? d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain. Note: Assume annual compounding. a. If the bond's yield to maturity is 7% when you sell it, what is the internal rate of return of your investment? The IRR of your investment if the bond's yield to maturity is 7% when you sell it is %. (Round to two decimal places.) b. If the bond's yield to maturity is 8% when you sell it, what is the internal rate of return of your investment? The IRR of your investment if the bond's yield to maturity is 8% when you sell it is %. (Round to two decimal places.) c. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment? The IRR of your investment if the bond's yield to maturity is 6% when you sell it is %. (Round to two decimal places.) d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain. (Select the best choice below.) A. Even though the yield to maturity changes, if there is no chance of default, then the bond is risk free. B. If there is no chance of default, the investment is risk free no matter when you sell it. C. There is always a chance of default, so every bond has risk. D. Even without default, if you sell prior to maturity, you are exposed to risk that the YTM may change.