Unformatted text preview: BUS 420
Financial Management of Corporations
Homework Assignment — Chapter 5 — Day 1 1. A $1 ,000—par value, 8125% per year coupon bond pays $40625 in interest every six months
The bond has a term to maturity of exactly 24 years. If investors require an annual return of
7.8%, compounded semiannually, on bonds of similar risk, what is the most an investor should
pay for this bond? 2 a r? /‘l' K '
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?J% lﬁtosSiost 2. A $1,000—par value bond pays interest semi—annually at a coupon rate of 6% per year. The bond I
matures in exactly 15 years. lf investors require an annual return of 7%, compounded semi '
annually, what should be the price of this” bond? 2. ﬂ ? /=‘( R ‘. 160C? 1—; —— Fxf _
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? _j_____ .5 3. A $1,000 par value bond pays interest semi—annually at an 8% annual rate. The bond has exactly ﬁve years until it matures. If the bond currently sells for $924.18, what is the band's yield to . 9 _
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. 3,, 1 R E ‘1 Pic 2. ’3? 4 0n 2 July 2006 the Wall Street Journal quoted the closing price of $1,000 par value, 8.11% __ coupon bonds paying semiannual interest issued by the Tunes Warner Company and due 1 July . 2016 as $1060. At that price, what was the yield to maturity on these bonds? 2 1; P11 P~ ' to erg} 41"— FU
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17% Z __,__,. 5. On 12 August 2005 Truman Dynamics the. sold $1,000 par value, 30year, 11% annual coupon bonds with interest paid semiannually In the ensuing year the general level of interest rates {iii{15$ if!)
changed unexpectedly so that by 12 august 2006, corporations were offering new 30year bondsLr‘ﬂ
with annual coupon rates of 9%. Was the price of Truman Dynamics lnc. bonds more likely higher or lower than $1,000 in August; 2006? Defend your position with the strongest arguments you can offer. ' ' Instrhhoctat {fact Corp; 6951— CO‘4 <5“ “1&3 +9
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 Spring '08
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