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Market Yield Rates and Bond Values
Smith & Company issued $80 million maturity value of 5-year bonds, which carried a coupon rate of 6%, with interest paid semiannually.

At the time of the debt offering, equivalent risk-rated bonds were yielding 8%.

One year after the 5-year bond offering, yield rates had risen to 10%; but, by the second anniversary of the bond sale, the yield rate on similarly risk-rated debt instruments had dropped to only 4%.


Calculate the proceeds from the sale of the 6%, 5-year bonds.
Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.

$Answer

Calculate the book value of the bonds after 1 year and after 2 years.
Do not round until final answer. Round answers to the nearest dollar.

Year 1 $Answer
Year 2 $Answer



Calculate the market value of the bonds after one year and after two years.
Use Excel or a financial calculator for your computations. Round your answers to the nearest dollar.

Year 1 $Answer
Year 2 $Answer



What is the relationship between market yield rates and bond values?

AnswerInversely correlatedPositively correlated

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Market Yield Rates and Bond Values.docx

Market Yield Rates and Bond Values
F= 80million
Bond Price= $80, 5 Years, 6% semiannual payments
N= 5X2= 10 periods
C= 6/2= 3%
I= Risk rated bonds=8/2= 4%
Net proceeds is the price of the bond....

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