Leeggara Company has an issue of 8-year, 11% annual coupon bonds outstanding. The bonds, which were...
Leeggara Company has an issue of 8-year, 11% annual coupon bonds outstanding. The bonds, which were originally issued 12 years ago, have a face value (FV) of $1,000, a yield-to-maturity (YTM) of 7%, and are noncallable. What is the current market price of Leeggara bonds ?
$1,053.02
$1,362.74
$1,238.85
$1,548.56
Are the bonds Leeggara Company selling at a discount, at par, or at a premium?
Premium
Par
Discount
What is the current yield on Leeggara outstanding bonds?
10.45%
8.07%
7.10%
8.88%
What is the expected one-year capital gain yield on the bonds of Leeggara Company?
-2.21%
-1.71%
-1.88%
-1.50%
Homework Answers
| 1) | |||
| Computation Of Bond Price | |||
| a | Annual Interest Amount | 110 | |
| ($1000*11%) | |||
| b | PV Annuity Factor for (8 Years,7%) | 5.971299 | |
| c | Present Value Of Annual Interest (a*b) | 656.8428 | |
| d | Redemption Value | 1000 | |
| e | PV Factor Of (8 Years,7%) | 0.582009 | |
| g | Present Value Of Redemption Amount (d*e) | 582.0091 | |
| f | Intrinsic Value ( Price ) Of The Bond (c+g) | 1238.852 | |
| 2) | Premium | ||
| 3) | Current Yield = Interest / Market Price | ||
| =($1000*0.11)/1238.85 | |||
| =$110/1238.85 | |||
| =8.88% | |||
| 4) | |||
| Price After 1 year | |||
| Computation Of Bond Price | |||
| a | Annual Interest Amount | 110 | |
| ($1000*11%) | |||
| b | PV Annuity Factor for (7 Years,7%) | 5.389289 | |
| c | Present Value Of Annual Interest (a*b) | 592.8218 | |
| d | Redemption Value | 1000 | |
| e | PV Factor Of (7 Years,7%) | 0.62275 | |
| g | Present Value Of Redemption Amount (d*e) | 622.7497 | |
| f | Intrinsic Value ( Price ) Of The Bond (c+g) | 1215.572 | |
| Capital Gain = $1215.57-1238.85/1238.85 | |||
| =-1.88% | |||
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