homework in finance
homework in finance
FIN 311
FALL 2019
Homework 4
Please answer all questions, do not leave any question unanswered. You can submit this to me at the beginning of class or through Moodle, your choice. Typed answers are preferred but not required. Homework is Due on 11/12/2019.
MCQ:
- A company would call its outstanding callable bonds if:
- If a 15-year bond with a face value of $1,000 currently sells for $850, then
- You are considering two bonds. Bond A has a 8% annual coupon while Bond B has a 5% annual coupon. Both bonds have a 6% yield to maturity, and the YTM is expected to remain constant. If that is the case, then it must be true that:
- Morin Company’s bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 6.1% on these bonds. What is the bond’s price?
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a. |
The company’s bonds are downgraded. |
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b. |
Market interest rates rise sharply. |
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c. |
The company’s financial situation deteriorates significantly. |
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d. |
Market interest rates decline sharply. |
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a. |
The bond’s coupon rate exceeds its current yield. |
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b. |
The bond’s current yield exceeds its yield to maturity. |
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c. |
The bond’s yield to maturity is greater than its coupon rate. |
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d. |
The bond’s current yield is equal to its coupon rate. |
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e. |
If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850. |
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a. |
The price of Bond B will decrease over time, but the price of Bond A will increase over time. |
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b. |
The prices of both bonds will remain unchanged. |
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c. |
The price of Bond A will decrease over time, but the price of Bond B will increase over time. |
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d. |
The prices of both bonds will increase by 7% per year. |
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e. |
The prices of both bonds will increase over time, but the price of Bond A will increase at a faster rate. |
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a. |
$1,024.74 |
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b. |
$1,147.71 |
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c. |
$1,116.97 |
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d. |
$1,096.47 |
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e. |
$1,280.93 |
Problems: Show your work
- Nungesser Corporation’s outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond’s price?
- Callaghan Motors’ bonds have 23 years remaining to maturity. Interestis paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield to maturity is 11%. What is the bond’s current market price?
- A bond has a $1,000 par value, 12 years tomaturity, and an 8% annual coupon and sells for $980. What is its yield to maturity (YTM)?
- A firm’s bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a price of $1,283.09 What are their nominal yield to maturity and their nominal yield to call?
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