Problem $10-1$ Page $321,$ Foundations of Financial Management. $16$th edition. Block, Hirt, and Danielsen.

Please make the Excel files for this question.

$1.$ Bond value $($LO$3)$ The Lone Star Company has $$1,000$ par value bonds outstanding at $10$ percent interest. The bonds will mature in $20$ years. Compute the current price of the bonds if the present yield to maturity is:

a$.6$ percent.

b$.9$ percent.

c$.13$ percent.

$9.$ Interest rate effect $($LO$3)$ Go to Table $1,$ which is based on bonds paying $10$ percent interest for $20$ years. Assume interest rates in the market $($yield to maturity$)$ increase from $9$ to $12$ percent.

a$.$ What is the bond price at $9$ percent?

b$.$ What is the bond price at $12$ percent?

c$.$ What would be your percentage return on the investment if you bought when rates were $9$ percent and sold when rates were $12$ percent?

Problem $10-2,$ Page $321,$ Foundations of Financial Management. $16$th edition. Block, Hirt, and Danielsen. Please make the Excel files for this question.

$2.$ Midland Oil has $$1,000$ par value bonds outstanding at $8$ percent interest. The bonds will mature in $25$ years. Compute the current price of the bonds if the present yield to maturity is:

a$.7$ percent.

b$.10$ percent.

c$.13$ percent.

$11.$ Effect of maturity on bond price $($LO$3)$ Using Table $2$:

a$.$ Assume the interest rate in the market $($yield to maturity$)$ goes down to $8$ percent for the $10$ percent bonds. Using column $2,$ indicate what the bond price will be with a year, a $15-$year, and a $20-$year time period.

b$.$ Assume the interest rate in the market $($yield to maturity$)$ goes up to $12$ percent for the $10$ percent bonds. Using column $3,$ indicate what the bond price will be with a year, a $15-$year, and a $20-$year period.

c$.$ Based on the information in part a$,$ if you think interest rates in the market are going down, which bond would you choose to own?

d$.$ Based on information in part b$,$ if you think interest rates in the market are going up$,$ which bond would you choose to own?