FINANCE BOND HW

1. Page Enterprises has bonds on the market making annual payments, with eleven years to maturity, and selling for $958. At this price, the bonds yield 6.40 percent.

What must the coupon rate be on the bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

2. Stone Sour Corp. issued 15-year bonds 2 years ago at a coupon rate of 9.10 percent. The bonds make semiannual payments. If these bonds currently sell for 103 percent of par value, what is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))

3.

Ponzi Corporation has bonds on the market with 19.5 years to maturity, a YTM of 8.00 percent, and a current price of $1,069. The bonds make semiannual payments.

What must the coupon rate be on these bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

4. Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has four years to maturity, whereas Bond Dave has 15 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

    Percentage change in price of Bond Sam %    Percentage change in price of Bond Dave %  

If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Round your answers to 2 decimal places. (e.g., 32.16))

    Percentage change in price of Bond Sam %    Percentage change in price of Bond Dave %  5.

Bond J is a 5 percent coupon bond. Bond K is a 11 percent coupon bond. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 8 percent.

If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)))

    Percentage change in price of Bond J %    Percentage change in price of Bond K %  

What if rates suddenly fall by 2 percent instead? (Round your answers to 2 decimal places. (e.g., 32.16))

    Percentage change in price of Bond J %    Percentage change in price of Bond K %  6.

Martin Software has 9.6 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.6 percent of par.

What is the current yield on the bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

  Current yield %  

What is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))

  YTM %  

What is the effective annual yield? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Effective annual yield

 %  

7.

Coccia Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,055, make semiannual payments, and mature in 20 years.

What coupon rate should the company set on its new bonds if it wants them to sell at par? (Round your answer to 2 decimal places. (e.g., 32.16))

  Coupon rate %  

8.

Backwater Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.6 percent. The current yield on these bonds is 7.95 percent.

How many years do these bonds have left until they mature? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Maturity of bond

 years  

9.8.

value:

5.00 points

  

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 19, 2012.

Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s)   IOU (IOU)  6.8  Apr 19, 2028  104.16   ??  1,840 

What is the yield to maturity of the bond? (Round your answer to 2 decimal places. (e.g., 32.16))

  YTM %  

What is the current yield? (Round your answer to 2 decimal places. (e.g., 32.16))

  Current yield %  

9.

Pangaea Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money. The required return on the bonds will be 10 percent.

a.

What will these bonds sell for at issuance? (Round your answer to 2 decimal places. (e.g., 32.16))

  Issue price$   b.

Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Interest deduction  First year$     Last year$   c.

Repeat part (b) using the straight-line method for the interest deduction. (Round your answer to 2 decimal places. (e.g., 32.16))

  Interest deduction$   d.

Based on your answers in (b) and (c), which interest deduction method would Pangaea Corporation prefer?

   

IRS amortization rule

10.

Suppose your company needs to raise $49 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent, and you’re evaluating two issue alternatives: A 7 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 30 percent.

a-1.How many of the coupon bonds would you need to issue to raise the $49 million?  Number of coupon bonds  a-2.How many of the zeroes would you need to issue? (Round your answer to 2 decimal places. (e.g., 32.16))  Number of zero coupon bonds  b-1.

In 25 years, what will your company’s repayment be if you issue the coupon bonds? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

  Coupon bonds repayment$   b-2.

What if you issue the zeroes? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

  Zeroes repayment$     c.

Calculate the aftertax cash flows for the first year for each bond. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

       Coupon bonds  (Click to select)OutflowInflow$     Zero coupon bonds  (Click to select)InflowOutflow$