New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 10 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $110 over par value. There is a 60 percent chance that the interest rate in one year will be 12 percent, and a 40 percent chance that the interest rate will be 7 percent. If the current interest rate is 10 percent, what is the current market price of the bond? Assume a par value of $1,000. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Calculate the price of the bond when interest rate is 12% as follows:
Price is $982.1429
-----------------------------------------------------------------------------
Calculate the price of the bond when interest rate is 7% as follows:
Price is $1,028.0374
-------------------------------------------------------------------------------------------------------------
Weighted price = (60%*$982.1429) + (40%*$1,028.0374)
Weighted price = $1,000.50
New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 10 percent...
New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 10 percent that can be called in one year. The bond makes annual coupon payments and has a par value of $1,000. The call premium is set at $135 over par value. There is a 60 percent chance that the interest rate in one year will be 12 percent, and a 40 percent chance that the interest rate will be 7 percent. If the current interest...
New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 9 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $130 over par value. There is a 60 percent chance that the interest rate in one year will be 11 percent, and a 40 percent chance that the interest rate will be 6 percent. If the current interest rate is 9 percent, what is the...
New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 11 percent that can be called in one year. The bond makes annual coupon payments and has a par value of $1,000. The call premium is set at $140 over par value. There is a 60 percent chance that the interest rate in one year will be 13 percent, and a 40 percent chance that the interest rate will be 8 percent. If the current interest...
New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 11 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $140 over par value. There is a 60 percent chance that the interest rate in one year will be 13 percent, and a 40 percent chance that the interest rate will be 8 percent. If the current interest rate is 11 percent, what is the...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5 percent, payable annually, and a par value of $1,000. The one-year interest rate is 6.5 percent. Next year, there is a 35 percent probability that interest rates will increase to 8 percent and a 65 percent probability that they will fall to 5 percent. a. What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations...
Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5 percent, payable annually, and a par value of $1,000. The one-year interest rate is 6.5 percent. Next year, there is a 35 percent probability that interest rates will increase to 8 percent and a 65 percent probability that they will fall to 5 percent. a. What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations...
Bond P is a premium bond with a coupon rate of 8.8 percent. Bond D is a discount bond with a coupon rate of 4.8 percent. Both bonds make annual payments, have a YTM of 6.8 percent, have a par value of $1,000, and have thirteen years to maturity. a. What is the current yield for Bond P? For Bond D? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)...
Bond P is a premium bond with a coupon rate of 8.6 percent. Bond D is a discount bond with a coupon rate of 4.6 percent. Both bonds make annual payments, have a YTM of 6.6 percent, have a par value of $1,000, and have eleven years to maturity. a. What is the current yield for Bond P? For Bond D? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g. 32.16.)...
Bond P is a premium bond with a coupon rate of 9.4 percent. Bond D is a discount bond with a coupon rate of 5.4 percent. Both bonds make annual payments, have a YTM of 7.4 percent, have a par value of $1,000, and have nine years to maturity. a. What is the current yield for Bond P? For Bond D? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)...
Bond P is a premium bond with a coupon rate of 8.4 percent. Bond D is a discount bond with a coupon rate of 4.4 percent. Both bonds make annual payments, have a YTM of 6.4 percent, have a par value of $1,000, and have nine years to maturity. a. What is the current yield for Bond P? For Bond D? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)...