Question

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the yield to maturity for these bonds is 7.22%. What is the market price per bond?

$986.81

S.S. Corporation’s bonds will mature in 15 years. The bonds have a face value of $1,000 and

an 6.5 percent coupon rate, paid semiannually. The price of the bonds is $1,050. What is the yield to maturity?

5.99%

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the

bonds have a $1,000 par value, and the coupon interest rate is 5.5 percent. The bonds have a yield to maturity of 8 percent.

1). What is the current market price of these bonds?

$869.84

2). What is the current yield?

6.32%

3). What is the capital gains yield?

1.68%

4). These bonds sell at

a. par b. a premium c. a discount

Discount.

Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable

semiannually. The bonds mature in 6 years, have a face value of $1,000, and a yield to maturity of 8.5 percent.

1). What is the price of the bonds?

$1,023.13

2). What is the current yield?

8.80%

3). What is the capital gains yield?

-0.30%

4). These bonds sell at

a. par b. a premium c. a discount

Premium.

Getty Markets has bonds outstanding that have a real return of 3.08 percent. The current rate of inflation is 3.1 percent. What is the nominal rate of return on these bonds?

6.28%

Suppose the nominal rate you see on a Treasury bill is 4.31 percent and its real rate is 2.5 percent, what is the inflation rate?

1.77%

Problem set 2

Homework: 1, 3, 4, 6, 8, 9, 11, 12

Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You expect the stock to pay a dividend of $0.75 per share at the end of Year 1 and $1.75 per share at the end of Year 2. You believe you can sell the stock for $15.50 at the end of Year 2. What is the value per share of the company’s stock if the required rate of return is 12 percent?

$14.42

Investors expect Microtech to pay the first dividend of $1.25 at the end of Year 2. The dividend should grow at a rate of 8 percent per year during Years 3, 4, and 5. The stock can be sold for $42 at the end of Year 5. Determine the current market value of the company’s stock if the required rate of return is 12 percent.

$27.61

Diets For You announced today that it will begin paying annual dividends next year.

The first dividend will be $1.25 a share. The following dividends will be $0.25, $0.25,

$0.50, and $0.75 a share annually for the following 4 years, respectively. At the end of

the fifth year, the stock could be sold for $18. How much are you willing to pay to buy

one share of this stock today if your desired rate of return is 8.5 percent?

$14.39

Please Show all work and steps typed as I am on mobile

Answer 1

NOTE: One query is restricted to the solution of only one complete question. As your post contains multiple distinct questions, I am solving only the first complete question. Please raise separate queries for solutions to the remaining questions.

Bond Coupon = 7 % per annum or 3.5 % per half-year, Yield to Maturity = 7.22 % per annum or 3.61 % per half-year

Bond Tenure = 8 years or 16 half-years and Face Value = $ 1000

Semi-Annual Bond Coupon = 0.035 x 1000 = $ 35

Let the bond price be $ P. This price should be equal to the total present value of the bond's future cash flows (in the form of semi-annual bond coupons and redeemed face value at maturity) discounted at the current yield to maturity.

Therefore, P = 35 x (1/0.0361) x [1-{1/(1.0361)^(16)}] + 1000 / (1.0361)^(16) ~ $ 986.81