Managerial Finance Essay

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Chapter 5: 5-1 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? P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39 5-2 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? Inputs | | Current Price: | $ | | Par Value: | $ | | Coupon Rate: | | % | Years to Maturity: | | | | Results | | Current Yield: | | % | Yield to Maturity: | | % | Yield to Maturity = 12.48% 5-6 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? k = k* + IP + DRP + LP + MRP. K T-2 = 6.3% = 3% + 3% + MRP; DRP = LP = 0. MRP = 6.3% - 6% = 0.3% 5-7 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? Bond Inputs | Number of years to maturity | | Coupon rate | | Face value | | Yield to maturity | | BOND VALUE | | | Price of bonds= $1,085.80 5-13 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 Yield = Annual Coupon Present Value 0.0821 = 80 PV PV = 80 0.0821 = 974.42 N = 5; PMT = 80; FV=1000; PV = 974.42 CPT I/Y I/Y = 8.65% Chapter 6: 6-6 If a

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