1 ‘CHAPTER 5: VALUING BONDS QUESTIONS AND PROBLEMS BOND VALUATION WITH ANNUAL COUPON PAYMENTS Find the price of $1,000 par value bond that matures in 10 yen, if t pays inter= ‘annually, based on a 6 percent coupon rate, and ifthe market rate of interest 185 percent. A $107721, B sia7rao. c.sor7as. D. $008.84, None d the above, A BOND VALUATION WITH SEMI-ANNUAL COUPON PAYMENTS ‘A Microgates Industries bond has @ 10 percent coupon rate and & $1,000 face Value, Interest is paid semiannully, and the bond has 20 years to maturity. In vestors require a 12 percent yield. What isthe bond's market value? A. $050.40 B 802025 © $849.54 D. $798.68 E, None ofthe above. c ‘A corporate bond with 8 years to maturity and a $1,000 face value is sling at $980, today. The bond pays semi-annual coupons at an annual rate of 6.4%, What would be the price of the bond two years from now ifthe yield to maturity becomes 6.5%? A. Shasoas. B 81,020.45, . $095.10D. $895.87, E, None of the above, c VALUATION OF ZERO COUPON BONDS ‘The value of «20 year zero-coupon bond when the market required rate of return 0f 9% is A. sa146s B $318.33. ©. si7eas. D. saz. E. None of the above. c VALUATION OF PERPETUAL BONDS OR CONSOLS. Perpetual Life Corp. has issued consol bonds with coupon payments of $50. If ‘the prevailing market interest rate atthe time they were sued was 6 percent, At what price were the consols sold to the public? A. $007.50, B. 8802386, © S776 D. $1,000. E, None ofthe above D HOW BOND PRICES VARY WITH INTEREST RATES ‘This information involves questions 6-7. Suppose market interest rates increase from 8 percent to 9 percent. Which bond. will suffer the grester percentage decline in price: a 30-year bond paying annual coupons of 8 percent, ora 30-year 2er0 coupon bond?‘The coupon bond wil fall by A. 10.27%, B 13.40% ©. 15.66%, D.17.20% None ofthe above. a 7. The zero coupon bond will fall by A 24.16%, B.2r40% ©: 35.66%, D. 47.20% E. None of the atove. A 8. market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term funds will likely be: ‘A. Greater than their book value B. Less than their book value. . Equal to their 200k value. D. Unknown without knowing the maturity of the debt. E. None of the above B ‘YIELD TO MATURITY Calculate the yield to maturity (YTM) on a bond priced at $1,096 which has 2 ty, # 10% coupon rate, and a face value of $1,000 at maturity.10. n. 12, E. None ofthe above, D A zero coupon bond has 12 years to maturity, a face value of $1,000, and cure ently sells for $900 in the market. What isthe yield to maturity on the bond? A. 18.45% B. 1038%. © 1223% D. 826%. E. Nene of the above. B BOND RATE OF RETURN ‘A bond thot pays voupons annually Is issued with coupon rate of 4 percent, mae turty of 30 yeas, and a yield to maturity of 8 percent. What rate of returt will be cared by ar investor who purchases the bond and holds it for 1 year if the ‘bond's yield to maturity at the end of the year is 9 percent? A. 6.20%. B 552%. ©. 484%. D 357%, E. None of the above D CURRENT YIELD ON THE BOND ‘A bond with a par value $1,000 and a coupon rate of 8% percent is sling price of $970, What is the eurrent yield on the bond? A 11.30%, B. 10258. ©. 8.25%.13, D.6.38% E. None of the above. c NOMINAL AND REAL RETURN ON THE BOND Calculate the real return forthe following corporate bond investment: Purchase for $840 one year ago, 4% coupon rate, sold for $894, Tlhe inflation rate was 5.0% ‘during the you A. 5.90%, B 470%. ©. 770%, D. 6.90% E. None of the above AVAW ING BONDS So LUTIONS TO QUESTIONS WPROBLEMSTOV eae ac Pv e e | coat) bi Gert Seatac ro] ( Ha tooo a Gee? oSr (resy* =(hoxt72170] + [loo x 0.61341) ues. 30 + 613. = ¥1,07F.21 \lOD eles a + eee eee es se L out? ao _ yoo = 1O.t9 SHR rest? = 5 ze Uso oz )4 QF ete VBS 44H 277 cS Y9-S4 i}os Sxr. = 16 Peewds tuso YR2ars Room nod, We would Wave 6 «2 = 12 Coupens left and the 6- month nea cote (S Sears Sha) © Therefore, Be eee cee eae fae aaa | Siciosia. | Ee _lsoo ; “\.e325 >a2\, ee {ood e - = QGts 0-0325 ~ Tae = BIZ.Y%050+ 681.2917 = #99S10oY 5 1od pee 2 = : Wee —Gaena) any a Re.43 ——eh CORON Pv of = Pate Pewperarty iat em 60 0:96 = #1900&G The Coupen bond has \artral Pree of 4) 000 aw be cance the Covpan roarte_ of BY 18 equeb to thn mraNert intereut Torres eo a7. bond wut fall THhe Coupon Ul ccy in (tral Pace of RS00 (When veld fe mati fy = 2%) te xned pac oot Per Sc ce walle ce epee |ESeee 190 = oe [- 1.99 s-| 0.09 + pape? . = #38 ie when 4TH earn Steve ho. x \9.0676 fo a ence of Woe 893? 1.09 Si FNS.UR —-9G 9-3? 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