Bond Problems:
1. Riordan Inc. has a bond that has a $1,000 par value, semiannual coupon rate of 4% and a current yield of 7.9%. What is the price of the bond?
2. You are considering the purchase of an AT&P bond with a 13%coupon rate. Interest is paid and compounded semiannually. The bond will mature in 8 years, and has a $1,000 face value. The bond currently sells for $867. Calculate the annual yield to maturity for this bond.
3. Two years ago, Starco issued a $1,000 par value, 20 year bond with a 6% coupon rate, payable semiannually. If your required rate of return on bonds of similar risk and maturity is 7%, how much would you be willing to pay for the bond today?
4. Evenson, Inc. issued a $1,000 par value, 10 year bond with a coupon rate of 9% payable semiannually. The bond's current selling price is $1,040. If you purchased the bond at its quoted price, what would your yield to maturity (YTM) be?
5. A bond is available for purchase that has a face value of $10,000, an 8% coupon, payable semiannually, and 20 years of its original 25 years left to maturity. How much would you pay for the bond if the market return on similar bonds is 10%?
6. You are interested in a $1,000, 20-year bond that is currently selling for $1,171.59. If you require a 10% return on your investment, what is the minimum coupon rate you can accept? The bond makes semiannual coupon payments.
7. Sunn Co.'s bonds, maturing in 7 years, pay 8% interest semiannually, on a $1,000 face value. If your required rate of return is 10%, what is the value of this bond?
8. You are willing to pay $900 for a 10-year bond ($1,000 par value) that pays 8% interest semiannually. The bond is callable in 5 years with a call premium of one year's interest at the coupon rate. What is your expected yield to call (YTC)?
9. One year ago a $1,000 face value, 6% coupon bond was selling for $1,100. Since then, the market has decreased by two percentage points. The bond pays interest semiannually and now has four years to maturity. What is the bond's price today?
10. Berry Corp has a $1,000 par value, callable bond outstanding. The call provision guarantees that the bond won't be called in the first ten years of its life, and if it is called thereafter the bondholder will be compensated with an extra two year's interest at the 14% coupon rate. The bond is now four years into its 25 year life. The market interest rate is now 7%, so it is likely that the bond will be called as soon as the contract allows. Interest is paid semiannually. What should the bond sell for today?
11. The Sampson Company issued a $1,000 bond five years ago with an initial term of 25 years and a coupon rate of 6%. Today's interest rate is 10%. What is the bond's price if interest is paid annually? What is the bond's price if interest is paid semiannually?
12. The Mariposa Company recently issued a 10-year, $1,000 par value bond at an 8% coupon rate payable semiannually. Two years later, similar bonds are yielding investors 6%. What price are the bond's selling for? What would the bonds be selling for if the yields had risen to 12%? Indicate whether each bond is selling at a premium or a discount.
13. An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21%. What are the bond's price and yield to maturity (YTM)?
14. Moonrise Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $920.
a. What is the yield to maturity?
b. What are the current yield and capital gains yield?
15. An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 15 years, while bond S matures in 1 year. What will the value of each bond be if the market interest rate is 5%? If interest rates suddenly rise by 3%, what will be the value of each bond? Calculate the percentage change in price of Bond L and Bond S.