# Chapter 13 1. a \$1,000 Bond Has a Coupon of 6 Percent and Matures After 10 Years.

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Chapter 13 1. A \$1,000 bond has a coupon of 6 percent and matures after 10 years. a. What would be the bond’s price if comparable debt yields 8 percent? Price = \$1,000 x 0.4632 + \$1,000 x 6% x 6.7101 Price = \$463.20 + \$402.61 Price = \$865.81 b. What would be the price if comparable debt yields 8 percent and the bond matures after five years? Price = \$1,000 x 0.6806 + \$1,000 x 6% x 3.9927 Price = \$680.60 + \$239.56 Price = \$920.16 c. Why are the prices different in a and b? The price is different in a and b because a has longer period. d. What are the current yields and the yields to maturity in a and b? Current Yield: a. \$60 / \$865.81 = 6.93% b. \$60 / \$920.16 = 6.52% Yield to Maturity (using Financial Calculator) a. 8% b. 8% 2. a. A \$1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond? Price = \$1,000 x 0.3855 + \$1,000 x 7.5% x 6.1446 Price = \$385.50 + \$460.85 Price = \$846.35 b. If after six years interest rates are still 10 percent, what should be the price of the bond? Price = \$1,000 x 0.6830 + \$1,000 x 7.5% x 3.1699 Price = \$683 + \$237.74 Price = \$920.74 c. Even though interest rates did not change in a and b, why did the price of the bond change The price of the bond changed because certain time period passed. d. Change the interest in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the bond prices different? a. Price = \$1,000 x 0.5584 + \$1,000 x 7.5% x 7.3601 Price = \$558.40 + \$552.01 Price = \$1,110.41 b. Price = \$1,000 x 0.7921 + \$1,000 x 7.5% x 3.4651 Price = \$792.10 + \$259.88 Price = \$1,051.98 Bond prices are still different because the time period remains different. 4. Black stone, inc. has a five-year