Question

1. Barry’s Steroids Company has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 40 years.

If the percent yield to maturity is 14 percent, what percent of the total bond value does the repayment of principal represent? Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) in the market (yield to maturity) decline from 10 percent to 7 percent.

	Principal as a percentage of bond price %

2. Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 10 percent to 7 percent.

a. What is the bond price at 10 percent?

	Bond price

b. What is the bond price at 7 percent?

	Bond price

c. What would be your percentage return on investment if you bought when rates were 10 percent and sold when rates were 7 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

	Return on investment %

Answer 1

1.

Bond Price at 14% YTM = "=PV(RATE,NPER,PMT,FV,TYPE)

Bond Price at 14% YTM = "=PV(0.14,40,-160,-1000,0)

Bond Price at 14% YTM = $1142.10

Principal Repayment = "=PV(RATE,NPER,PMT,FV,TYPE)"

Principal Repayment = "=PV(0.14,40,0,-1000,0)"

Principal Repayment = $5.29

Principal as a percentage of Bond Price = 5.29 / 1142.10 = 0.46%

2. a. Bond Price at 10% for 20 Years = $1000

b. Bond Price at 7% for 20 years = $1317.82

c. ROI = (1317.82 / 1000) - 1

ROI = 31.78%