FI-360 Homework 3-2

FI-360 Homework 3-2 - Foundations of Financial Management...

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Foundations of Financial Management FI-360 Homework Assignment #3 “Valuations and Rates of Return” 1. Burns Fire and Casualty Company has $1,000 par value bonds outstanding at 11 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is: a. 6 percent. b. 8 percent. c. 12 percent. A. 6% PV A= A x PV IFA (n = 20, i = 6%) PV A = $110 x 11.470 = $1,261.70 PV = FV x FV IF (n = 20, i = 6%) PV = 1,000 x .312 = $312 $1,261.70 312.00 $1,573.70 B. 8 % PV A = A x PV IFA (n = 20, i = 8%) PV A = $110 x 9.818 = $1,079.98 PV = FV x PV IF (n = 20, i = 8%) PV = $1,000 x .215 = $215 $1,079.98 215.00 $1,294,88 C. 12% PV A = A x PV IFA (n = 20, i = 12%) PV A = $110 x 7.469 = $821.59 PV = FV x PV IF (n = 20, i = 12%) PV = $1,000 x .104 = $104 $821.59 104.00 $925.59
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2. Harrison Ford Auto Company has a $ 1,000 par value bond outstanding that pays 11 percent interest. The current yield to maturity on each bond in the market is 8 percent. Compute the price of these bonds for these maturity dates:
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This note was uploaded on 02/09/2011 for the course FIN 360 taught by Professor Smith during the Spring '10 term at Park.

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FI-360 Homework 3-2 - Foundations of Financial Management...

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