Fin515 Homework Week 5

5-1 Bond Valuation

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% (MKT RATE USED TO CAL DIVIDEND PMTS). The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

($928.39)

5-2 YTD for Annual Pmt

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?

12.48%

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?

R* 3%

IP 3%

DRP 0 N/A FOR US TREASURY SECURITIES

LP 0 N/A FOR US TREASURY SECURITIES

MRP 0.30%

Yield to Mat 6.30%

5-7 Bond Yield to Maturity

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?

($1,085.80) YTM=MKT RATE X 2 BECAUSE OF SEMI-ANNUAL

DIVIDEND DIVIDED BY TO BC SEMI-ANNUAL

5-13 Yield to Maturity & 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 yield = annual int / PV of bond

8.21%= 80 / PV PV = 80 / 8.21% 974.42

8.65%

6-6 Beta & expected return

If a...