Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are interested in selling a General Motors (GM) bond that you bought 4 years ago. The bond has a face value of $20,000,

image text in transcribed

You are interested in selling a General Motors (GM) bond that you bought 4 years ago. The bond has a face value of $20,000, a remaining maturity of 16 years, and a coupon rate of 4%. GM has a BBB credit rating for these bonds. Other BBB bonds being issued today offer a coupon rate of 3%. Use this information for Questions 1 and 2. 1. How much is your bond worth today? (NPV) 2. You paid $20,000 for the bond when you bought it 4 years ago. If you sell it for the NPV from Question 1, what would be your Return On Investment (ROI)? 3. You are considering buying a US government Zero Coupon savings bond. This bond has a face value of $5,000, a time to maturity of 5 years, and an interest rate of 3%. What would you expect to pay for this bond today? 4. Your broker has recommended a FINA Inc corporate bond with a BBB rating. It has a face value of $1,000, a coupon rate of 3% and 6 years remaining to maturity. Current BBB corporate bonds have a yield of 4%. What is the value of that bond today? 5. If the FINA bond from Question 4 had a maturity date of only 3 years, what would be its current NPV? Why is this different from your answer in Question 4?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding financial statements

Authors: Lyn M. Fraser, Aileen Ormiston

9th Edition

136086241, 978-0136086246

More Books

Students also viewed these Finance questions