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Sample Problems—Bonds
1.
Consider a $1,000 par value bond with a 7 percent annual coupon.
The bond pays interest annually.
There are 9 years remaining until maturity.
What is the
current yield
on the bond assuming that the
required return on the bond is 10 percent?
2.
Assume that you wish to purchase a 20year bond that has a maturity value of $1,000 and makes semi
annual interest payments of $40.
If you require an annual 10 percent rate of return on this investment,
what is the maximum price you should be willing to pay for the bond?
3.
Suppose Ford Motor Company sold an issue of bonds with a 12year maturity, a $1,000 par value, a
12% coupon rate.
Two years after
the bonds were issued, the going rate of interest on bonds such as
these had risen to 14 percent.
At what price would the bonds sell?
4.
Delta Corporation has a bond issue outstanding with an annual coupon interest rate of 9 percent and 4
years remaining until maturity.
The par value of the bond is $1,000.What is the current yield of the
Delta Corporation bond is the bond currently sells for $713.75?
5.
Suppose Ford Motor Company have 10 years remaining to maturity.
Interest is paid annually; the
bonds have a $1,000 par value; and the coupon interest rate is 12 percent.
Compute the yield to
maturity for the bonds if the current market price is $910.
6.
What is the value of an Orion bond that has a 10 percent annual coupon, pays interest semiannually,
and has 10 years to maturity, if the annual required rate of return is 12 percent?
7.
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 Fall '10
 hamdibilici
 Financial Accounting

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