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1. Mega Industries Corporation has 18 years of a bond outstanding to maturity, an 8.25% nominal coupon, with half yearly payments. The bond has a 6.5% nominal yield to the maturity, and can be called at a price of $1,120.

a. What is bond’s nominal yield to maturity when called?

b. What is bond’s effective yield? If inflation rate is at 2.95% what is real rate of return?

2. Copper Corporation’s Class half bonds have a 12 year maturity and an 8.75% coupon paid half yearly and those bonds sell at their par value. The firm’s Class A bonds have the same risk, maturity, nominal interest rate, and par value however these bonds pay interest yearly. Neither bond is callable.

a. At what price should bond sell for?

b. Does this bond sell at a discount or premium and why?

3. Flagship Corp. is looking to raise capital by issuing some 26 year bonds. The yield on the bonds is 7.34 percent. The bonds sell 96.75 percent of par value.

a. What is current yield on these bonds?

b. What is effective yield on these bonds?

c. What is yield to maturity? What type of bond is this, discount or premium?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M91659

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