D assume that mark will reinvest the interest

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Unformatted text preview: e reinvestment is only 10%. For each bond, calculate the value of the principal payment plus the value of Mark’s reinvestment account at the end of the 5 years. e. Why are the two values calculated in part d different? If Mark were worried that he would earn less than the 12% yield to maturity on the reinvested interest payments, which of these two bonds would be a better choice? LG6 6–24 Bond valuation—Semiannual interest Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon interest rate of 10% (5% paid semiannually) if the required return on similar-risk bonds is 14% annual interest (7% paid semiannually). LG6 6–25 Bond valuation—Semiannual interest Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond Par value Coupon interest rate Years to maturity A $1,000 10% 12 B 1,000 12 20 Required stated annual return 8% 12 C 6–26 12 5 14 1,000 14 10 10 E LG6 500 D 100 6 4 14 Bond valuation—Quarterly interest Calculate the value of a $5,000-par-value bond paying quarterly interest at an annual coupon interest rate of 10% and having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly. 304 PART 2 Important Financial Concepts CHAPTER 6 CASE Evaluating Annie Hegg’s Proposed Investment in Atilier Industries Bonds A nnie Hegg has been considering investing in the bonds of Atilier Industries. The bonds were issued 5 years ago at their $1,000 par value and have exactly 25 years remaining until they mature. They have an 8% coupon interest rate, are convertible into 50 shares of common stock, and can be called any time at $1,080. The bond is rated Aa by Moody’s. Atilier Industries, a manufacturer of sporting goods, recently acquired a small athletic-wear company that was in financial distress. As a result of the acquisition, Moody’s and other rating agencies are considering a rating change for Atilier bonds. Recent economic data suggest t...
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