Question
Step by step show work? 1. A 15-year, $1,000 par value bond has a 7% annual coupon. The bond currently sells for $925. If the
Step by step show work?
1. A 15-year, $1,000 par value bond has a 7% annual coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 4 years from now?
2. Helio Corporation has 5-year, $1,000 par value bonds that have a yield to maturity of 7.5% and a 10% annual coupon rate. What are the current and capital gains yields on the bonds for this year?
3. A 10-year, 10% semiannual coupon bond has a par value of $1,000. The bond has a price of $1,150. What is the bonds nominal yield to maturity?
4. Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.25%, a maturity premium of 0.08% per year to maturity applies, i.e., MRP = 0.08%*t, where t is the years to maturity. Suppose also that a liquidity premium of 0.5% and a default risk premium of 0.85% applies to A-rated corporate bonds. How much higher would the rate of return be on a 10-year A-rated corporate bond than on a 5-year Treasury bond?
5. Kimbo Technologies issued 102year bonds yesterday at their par value of $1,000. These bonds pay $60 in interest every six months, and their price has remained at the $1,000 issue price. Skylab's CFO has determined that the firm needs an additional $2,000,000, and has decided to issue 10-year, $1,000 par value bonds that pay only $50 in interest every six months. If both bonds are to provide investors with the same yield, how many new bonds must Kimbo issue to raise $2,000,000? (Ignore the day or two difference between the bonds' issue dates)
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