At what rate of return must the insurance company invest this 49500 in order to

# At what rate of return must the insurance company

This preview shows page 11 - 15 out of 23 pages. Chapter 10 1. Midland Oil has \$1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 25 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the present yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.) 15% Bond Price 1064.24 14% Bond Price 1137.68 16% Bond Price 999.52 2. Kilgore Natural Gas has a \$1,000 par value bond outstanding that pays 12 percent annual interest. The current yield to maturity on such bonds in the market is 13 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the price of the bonds for these maturity dates: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.) 30 year bond price 925.52 17 year bond price 932.48 3 year bond price 976.32 Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 14 percent for 20 years on a bond paying 10 percent. 3. a. What is the price of the bond?  4. Media Bias Inc. issued bonds 10 years ago at \$1,000 per bond. These bonds had a 40-year life when issued and the annual interest payment was then 13 percent. This return was in line with the required returns by bondholders at that point in time as described below: Real rate of return 5 % Inflation premium 4 Risk premium 4 Total return 13 % Assume that 10 years later, due to good publicity, the risk premium is now 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds  #### You've reached the end of your free preview.

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