RHIM 4322 * Demo Exercise 5 * Characteristics and Valuation of Bonds Information Sheet Bond Valuation 1. Consider a bond issued by Wal-Mart with a maturity date of December 2022 and a stated annual coupon rate of 4.55%. In December 2018, with 4 years left to maturity, investors owing the bonds were only requiring a 2.48% rate of return. What would be the value of the bonds to these investors? 2. Suppose our firm decides to issue 20-year bonds with annual coupon payments. We decide to offer a 12% coupon rate. The required return on this kind of corporate bonds is currently 14%. What would be the value of these bonds to investors? 3. Suppose our firm decides to issue 20-year bonds. We decide to offer a 12% coupon rate. The required return on bonds of similar risk is 10%. What is the bond's value to investors? 4. You own a bond that pays 10% in annual coupon rate. It matures in 15 years. Calculate the value of the bond to you as the investor if your required rate of return on the bonds is (a) 8%, (b) 10%, and (c) 12%, respectively. Expected Rate of Return of Bond (Yield to Maturity) 5. The market price is $900 for a 10-year bond that pays 8% coupon rate. What is the bond's expected rate of return (Yield to Maturity)? 6. Exxon Mobil 20-year bonds pay 9% coupon rate annually. If bonds sell at $945, what is the bonds' expected rate of return (Yield to Maturity)? 7. Suppose a bond sells at $898.90 and 10% coupon rate with 8 years to maturity and annual coupon interest payments. What is the bond's expected rate of return (Yield to Maturity)? Investment Decisions 8. Cranston Industries just issued 30-year bonds that pay 8.5% coupon rate annually. a. The bonds sold for $1,107.20. Calculate the bond's expected rate of return (Yield to Maturity). Investors require a return rate of 7.75% on the bonds. Determine the value of the bond to you as an investor. C. Should you purchase the bond? Why? 9. Monster Zinc just issued 20-year bonds that pay 7.65% coupon rate annually. a. The bonds sold for $990.25. Calculate the bond's expected rate of return ( Yield to Maturity). Investors require a rate of 6.45% on the bonds. Determine the value of the bond to you as an investor. Should you purchase the bond? Why?A B C D E F G H K I Comer a bond issued by Wal Mart with a maturity date of December 2022 and a dated annual coupon rate of 4.55%. In December 2018, with 4 years left to maturity, L M IN investors owing the bonds were only requiring a 2.48% rate of return. What would be the value of the bonds to these investors? FV 1,000 FV is always 1000 for any bonds 0.0248 PIE 45.50 - FV * Coupon Rate = 1000 * 0 0455 - 45.50 type PV - [$1.077.91) OR 10 PV - ($1.0/7.21) Enter each number by moving your mouse to the comeponding cell and click leg. cell (2 for fv) 11 12 Hit Enter Key when all numbers are entered 13Insort Format Help raQq Callbri 11 B/USA. D E F G H K M N 10 6. Exxon Mobil 20-year bonds pay %% coupon rate annually. If bonds sell at $945, what is the bonds' expected rate of return (rield to Maturity]? FV 1,000 11 PV -945 12 nper 20 13 prut 90.00 14 type 15 Rate = 2.6313 16 17 to Maturity)? 7. Suppose a bond sells at $898.90 and 10% coupon rate with 8 years to maturity and annual coupon interest payments. What is the bond's expected rate of return (Yield 18 FV 1,000 19 PV -898.9 20 21 port 100.00 22 type 23 Rate - 12.04 24 Blond Valuation Yield to Maturity Investment Decisions 9 M hipX Demo Exercise 5.xisx?globalNavigation=false.xisx File Edit Insert Format Help a q Calibri B/USA. A B C D E 1 F G H J K L 5. The market price is $900 for a 10 year bond that pays 8% coupon rate. What is the bond's expected rate of return (Yield to Maturity)? 2 FV 1,000 FV is always 1000 for any bonds 3 PV -900 PV is negative since this is cash paid out nper 10 5 pri 80.00 - FV * Coupon Rate = 1000 * 0.08 - 80.00 6 type O Rate - 9.60% -RATE[nper.pmt.pv.[fv].[type].Iguess!) 9 6. Exon Mobil 20-year bonds pay 9%% coupon rate annually. If bonds sell at $945, what is the bonds' expected rate of return (Yield to Maturity)? 10 FV 1,000 11 PV -945 12 nper 20 pit 90.00 14 15 Rate = 9.6315 16 17 7. Suppose a bond sells at $898.90 and 10% coupon rate with 8 years to maturity and annual coupon interest payments. What is the bond's expected rat to Maturity]? 18 FV 1.000 19 PV 898.9 20 nper Imn Bond Valuation Yield to Maturity Investment Decisions8. Cranston Industries just issued 30-year bonds that pay 8.5% coupon rate annually. B C D E F B. Cranston Industries just issued 30-year bonds that pay 8.5% coupon rate annually. G H J K L M N a. The bonds sold for $1,107.20. Calculate the bond's expected rate of return (Yield to Maturity). FV 1,000 PV -1107.2 nper 30 pmt 85.00 8 type Rate- 7.58% 10 11 b. Investors require a return rate of 7.75% on the bonds. Determine the value of the bond to you as an investor. 12 FV 1,000 13 rate 0.0775 14 nper 30 15 pmt 85.00 16 type 17 PV - ($1,086.46) 18 19 C. Should you purchase the band? Why? 20 No. Because the market price ($1,107.20) is higher than the budget ($1,086.46) (Le. the price that the invester is willing to pay). 21 22 9. Monster Zinc just issued 20-year bonds that pay 7.65% coupon rate annually. 24 a. The bonds sold for $990.25. Calculate the bond's expected rate of return (field to Maturity). 25 FV 1,000 PY -990.25 Band Valuation Yield to Maturity Investment Decisions hpA C E F G H J K L M N 14 2. Suppose our firm decides to lasue 20-year bonds with annual coupon payments. We decide to offer a 12% coupon rate. The required return on this kind of corporate bonds currently 14%. What would be the value of those bonds to investors? 15 FV 1,0:00 16 0.14 17 nper 30 120.00 19 PV = 22 3. Suppose our firm decides to lisue 20-year bonds. We decide to offer a 12% coupon rate. The required return on bonds of similar risk is 10%. What is the bond's value to 23 1.00 0.10 25 inper 20 26 120.00 27 type PV - (41.170 27)RHIM 4322 * Homework 5 * Characteristics and Valuation of Bonds Please complete and show work in an excel spreadsheet following the Demo Exercise. Do transfer the financial data to the spreadsheet. No need to show the explanatory notes like what is being provided in the Demo Exercise. Submit the Homework spreadsheet using this filename "RHIM4322- Last Name-Homework 5" 1. Calculate the value of a bond that will mature in 20 years. The annual coupon interest rate is 7.75%, and the investor's required rate of return is 8.25%. 2. You own a bond that pays 12% in annual coupon interest. It matures in 15 years. Calculate the value of the bond if your required rate of return on the bonds is (a) 8%, (b) 12%, and (c) 15%, respectively. 3. Assume the market price of a 5-year bond for Margaret Inc. is $900. The bond has an annual coupon interest rate of 6%. What is the bond's expected rate of return (Yield to Maturity)? 4. National Steel 15-year bonds pay 8% coupon interest annually. a. The market price of the bonds is $1,085. Compute the bond's expected rate of return (Yield to Maturity). b. Your required rate of return is 10%. Determine the value of the bond to you. c. Should you purchase the bond? Why?9 9 Calibri 11 BIUSA. E . A B C D E F G H J K L M N 21 22 9. Monster Zinc just issued 20-year bonds that pay 7.65% coupon rate annually. na 24 a. The bonds sold for $990.25. Calculate the bond's expected rate of return (Yield to Maturity). 25 FV 1,000 26 PV -990.25 27 nper 20 28 pit 76.50 29 type 30 Rate - 7.75% 31 32 b. Investors require a rate of 6.45%% on the bonds. Determine the value of the bond to you as an investor. 33 FV 1,000 34 rate 0.0645 35 nper 20 36 prt 76.50 37 type 38 PV - ($1,132.75) 39 40 c. Should you purchase the bond? Why? Yes. Because the market price ($990.25) is lower than the budget ($1.132.75) (Le. the price that the invester is willing to pay). 41 42 43 44 Bond Valuation Yield to Maturity Investment DecisionsA B C D E F G H J K L M IN 30 4. You own a bond that pays 1016 In annual coupon rate. It matures in 15 years. Calculate the value of the band to you as the investor If your required rate of return on the bonds is (a) 896, (6) 10%%, and [c) 127%, respectively 31 FV 1,000 0.08 nOCT 15 34 100.00 135 LYpie 36 PV ($1.171.17) 37 38 FY 1.060 rate 0.10 40 15 41 pmt 100.00 42 type 43 (41.000.00] 44 45 FV 1.000 46 mate 0.12 AT 15 100.00 (4853.78] 51