CH 05 HW day 1 solution

CH 05 HW day 1 solution - BUS 420 Financial Management of...

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Unformatted text preview: BUS 420 Financial Management of Corporations Homework Assignment — Chapter 5 — Day 1 1. A $1 ,000—par value, 8-125% 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 semi-annually, on bonds of similar risk, what- is the most an investor should pay for this bond? 2 a r? /‘l' K ' taco -i-{ —- F \J H 40.5725" tr .. ? M 1 24 :1 x i’ /‘r l2 . 1' , 3 I 1’ I ‘1’ ' I ~ , . ?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 _ 50 +5 ‘- 9 M i is” If! E‘W‘tk _.._...... —----~——._...._..._, _..! _ ‘ - ' O ,O ‘ ? _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 _ matumy' *2. 33 73' r/‘{ 11 loco W” F bf __ L10 “f"[u P Ml CW” WP Ina. S" 3:3 K___ I ' c . 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 ‘ .- .-. girlo “5 l: *2!" PHT 1060 PU to u r Ply a 17% Z __,__,. 5. On 12 August 2005 Truman Dynamics the. sold $1,000 par value, 30-year, 11% annual coupon bonds with interest paid semi-annually- In the ensuing year the general level of interest rates {iii-{15$ if!) changed unexpectedly so that by 12 august 2006, corporations were offering new 30-year bondsL-r-‘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 actual TN Pngcullt/lc: featured Ward 30 V09) EOWCLC- Ga“ Fox/l ‘3 LIDOO. Pabst-WW» 65/174043. { - % I11!C)Ce (“great (“q-Eric. \LC’LK ({VOM two 179 “$25.3 4‘50 _ Pruieeaé God—ShMCR \‘k03 bat/HS LCD—3.2.. (Pat? Wtfifik ...
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