714 Words3 Pages

Problems:
Easy Problems 1-6
• 5-1 Bond Valuation with Annual payments
Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?
80*7.1607+1000*.3555 = $928
• 5-2 Yield to Maturity for Annual payments
Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?
100+1000-850/12/1000+850/2 = 112.5/925 = .1216 or 12.16%
• 5-6 Maturity Risk Premium
The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?
6.3-3-3 = 0.3%
Intermediate Problems 7-20
• 5-7 Bond Valuation with Semiannual payments
Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
50*11.44+1000*.5138 = 1086
• 5-13 Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
Current price = 80/.0821 = 974
YTM = 80+1000-974/5/1000+974/2 = 85.2/987 = .0863 or 8.63%
(Brigham, Eugene F. . Financial Management: Theory & Practice, 13th Edition. South Western Educational Publishing, 03/2010. pp. 210 - 211).
Questions
(6-6) If a company’s beta were to double, would its expected return double?
It

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