# 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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