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Homework 5 Seved 2 Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity decline from 25 percent to 11 percent a. What is the bond price at 25 percent? 18 points Bond price Skloped eBook b. What is the bond price at 11 percent? Bond price Print e. What would be your percentage return on investment if you bought when rates were 25 percent and sold when rates were 11 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Return on Westmer 4 Katie Pairy Fruits Inc. has a $1,700 18-year bond outstanding with a nominal yield of 18 percent (coupon equals 18% $1700 = $306 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods a. Compute the current price of the bond. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) 18 points Skipped Current price of the bond eBook Part b. Find the present value of 6 percent - $1700 for $102) for 18 years at 12 percent. The $102 is assumed to be an annual payment. Add this value to $1700. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual) Present value 8 Ecology Labs Inc. will pay a dividend of $2.50 per share in the next 12 months (01). The required rate of return (x) is 19 percent and the constant growth rate is 8 percent (Each question is independent of the others.) a. Compute the price of Ecology Labs' common stock. (Do not round intermediate calculations, Round your answer to 2 decimal places.) 8 boints Skipped Price eBook Hint b. Assume x, the required rate of return, goes up to 23 percent. What will be the new price? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Print New price c. Assume the growth rate (dl goes up to 10 percent. What will be the new price? Regoes back to its original value of 19 percent. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) New price d. Assume, is $3.00. What will be the new price? Assume K, Is at its original value of 19 percent and g goes back to its original value of 8 percent. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) New price 5 1.8 points Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 8 percent annual interest and has 17 years remaining to maturity. The current yield to maturity on similar bonds is 13 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual) Answer is complete but not entirely correct. Current price of the bond 15 562.603 b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Price increases by 77.74
