Chapter_16_-_Moodle_Ready

Chapter_16_-_Moodle_Ready - Chapter 16 Problems (Assume the...

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Chapter 16 Problems (Assume the par value of the bonds in the following problems is $1,000 unless otherwise specified.) 16-A. The Pioneer Petroleum Corporation has a bond outstanding with an $85 annual interest payment, a market price of $800, and a maturity date in five years. Find the following: a . The coupon rate. b . The current rate. c .The approximate yield to maturity. 16-A. Solution: The Pioneer Petroleum Company a. $85 interest/$1,000 par = 8.5% coupon rate b. $85 interest/$800 market price = 10.625% current yield c. Approximate yield to maturity = (Y') payment) (Principal .4 bond) the of (Price .6 maturity to years of Number bond the of Price payment Principal payment interest Annual ) Y' ( + - + = $1,000 $800 $85 5 .6($800) .4($1,000) $200 $85 5 $480 $400 $85 $40 $880 $125 14.20% $880 - + = + + = + + = = = S16-1
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16-B. Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $900. It has 10 years to maturity. Bond Z pays $95 annual interest and has a market value of $920. It has two years
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This note was uploaded on 07/03/2011 for the course BUS 320 taught by Professor Sloan during the Summer '08 term at N.C. State.

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Chapter_16_-_Moodle_Ready - Chapter 16 Problems (Assume the...

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