Question 1:

Bond Valuation with Semiannual Payments

Renfro Rentals has issued bonds that have a 7% coupon rate, payable semiannually. The bonds mature in 20 years, have a face value of $1,000, and a yield to maturity of 5.5%. What is the price of the bonds? Round your answer to the nearest cent.

Question 2:

Current Yield for Annual Payments

Heath Food Corporations bonds have 5 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 7%. They pay interest annually and have an 8% coupon rate. What is their current yield? Do not round intermediate calculations. Round your answer to two decimal places.

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Question 3:

Yield to Maturity and Required Returns

The Brownstone Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%.

1. 1. What is the yield to maturity at a current market price of $829? Round your answer to two decimal places.
   2. What is the yield to maturity at a current market price of $1,104? Round your answer to two decimal places.
2. Would you pay $829 for one of these bonds if you thought that the appropriate rate of interest was 13% - that is, if r_d = 13%?

Explain your answer.

I. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. II. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return. III. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. IV. You would buy the bond as long as the yield to maturity at this price does not equal your required rate of return.

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Question 4:

Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE):

r_RF = 4%; r_M = 9%; RP_M = 5%, and beta = 1.1

What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

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If inflation increases by 1% but there is no change in investors' market risk premium, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.

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Assume now that there is no change in inflation, but market risk premium increases by 1%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.

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If inflation increases by 1% and market risk premium increases by 1%, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.

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