Mini-Case our grandfather is retired and living on his Social Security ben- 2. The bond issues are currently selling for the following nd the interest he gets from savings. However, the interest receives has dwindled to only 2 percent a year on 0,000 savings as interest rates in the economy have You have been thinking about recommending that he ase some corporate bonds with at least part of his savings amounts: income he his Young Corp. $1,030 Thomas Resorts S 973 Entertainment, Inc. $1.035 way of increasing his interest income. fically, you have identified three corporate bond is adfather to consider. The first is an issue from Young Corporation that pays annual interest based on a 7.8 ent coupon rate and has 10 years before it matures. The sec- nd bond was issued by Thomas Resorts, and it pays 7.5 percent nnual interest and has 17 years until it matures. The final bond What is the yield to maturity for each bond? for your 3. Given your estimate of the proper discount rate, what is your estimate of the value of each of the bonds? In light of the prices recorded above, which issue do you think is most the attractively priced? ssue was sold by Entertainment, Inc., and it pays an annual 4. How would the values of the bonds change if the market's oupon interest payment based on a rate of 7.975 percent and required yield to maturity on a comparable-risk bond (i) in- creases 3 percentage points or (ii) decreases 3 percentage 1,000 par value. After looking at the bonds' default risks and points? Which of the bond issues is the most sensitive to as only 4 years until it matures. All three bond issues have a redit ratings, you have very different yields to maturity in mind changes in the rate of interest? or the three bond issues, as noted below. 5. What are some of the things you can conclude from these Before recommending any of these bond issues to your randfather, you perform a number of analyses. Specifically, computations? 6, Which of the bonds (if any) would you recommend to ou want to address each of the following issues: grandfather? Explain. 1. Estimate an appropriate market's required yield to maturity for each of the bond issues using the credit spreads reported in Table 9.4 Thomas Entertainment Young Corp. Resorts Inc. 7975% 7.8% 10 $1,030 7.5% 17 $973 oupon interest rate ears to maturity urent market price ar value $1,035 $1,000 $1,000 $1,000 ond rating