FINE 2000 Lecture Notes - Lecture 4: Current Yield, Discounting

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sapphiresea-lion342

14 Jun 2016

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Company glc limited issues 5-year ,000 semi-annual bonds bearing a coupon rate of 6% (apr). In year 1, the investor a receives two coupon payments from glc limited of each. The investor decides to sell the bond on the market after year 1. The current yield for a similar risk bond is. 5% (apr) so many investors want to purchase the glc limited bond since it is paying 6%. As a result the market price of the bond is bid higher until the yield on the glc limited bond is similar to that of comparative bonds on the market. The market price will be equal to the sum of the future cash flows discounted at 5%, which is the current expected ytm on similar risk bonds.

Related Questions

Part A

An investor just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond is 8 percent annually, with interest being paid every 6 months. If the investor expects to earn a 10 percent simple rate of return on this bond, how much should she pay for it? (Round the answer to two decimal places.)

Part B

Assume that an investor wishes to purchase a 20-year bond with a maturity value of $1,000 and semiannual interest payments of $40. If the investor requires a 10 percent simple yield to maturity on this investment, what is the maximum price she should be willing to pay for the bond? (Round the answer to the nearest whole number.)

A 619

B 902

C 828

D 674

Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity. These bonds will pay $45 interest every 6 months. Current market conditions are such that the bonds will be sold at net $937.79. What is the yield to maturity (YTM) of the issue as a broker would quote it to an investor? (Round the answer to the nearest whole number.)

		9%
		10%
		11%
		7%

The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

		$44.00
		$38.50
		$50.00
		$45.69

turquoiseoyster411

Urgent Solution please

Regal Health Plans issued municipal bonds with 10-year time to maturity and 8% coupon rate semiannually. An investor is subject to 30% tax bracket. For this investor, to invest in a corporate bond with the same bond rating and a yield of 10% is the same as to invest in the municipal bond issued by Regal Health Plans. (Bonds face value is $1,000)

What is the municipal bondâs yield? (6 points)

What is the current price of the municipal bonds issued by Regal Health Plans? (3 points)Is it discount or premium bond? (3 points)

The investor bought the municipal bonds. One year later, the interest rate falls and the bond yield changes to 6%. What is the investorâs current yield? (4 points) What is the investorâs capital gain yield? (4 points)

bluehornet3

Urgent Solution please

What is the municipal bondâs yield? (6 points)

What is the current price of the municipal bonds issued by Regal Health Plans? (3 points)Is it discount or premium bond? (3 points)

taupehippopotamus489

FINE 2000 Lecture Notes - Lecture 4: Current Yield, Discounting

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