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An investor has two bonds in his portfolio. Each bond matures in4 years, has a face value of $1,000, and has a yield to maturityequal to 8.5%. One bond, Bond C, pays an annual coupon of 10.5%;the other bond, Bond Z, is a zero coupon bond. Assuming that theyield to maturity of each bond remains at 8.5% over the next 4years, what will be the price of each of the bonds at the followingtime periods? Assume time 0 is today. Fill in the following table.Round your answers to the nearest cent.

t Price of BondC Price of BondZ
0 $ $
1
2
3
4

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019

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An investor has two bonds in his portfolio that both have a facevalue of $1,000 and pay a 6% annual coupon. Bond L matures in 18years, while Bond S matures in 1 year.

Assume that only one more interest payment is to be made on BondS at its maturity and that 18 more payments are to be made on BondL.

What will the value of the Bond L be if the going interest rate is8%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is14%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is14%? Round your answer to the nearest cent.
$

Please explain how to get the results. THANK YOU!

An investor purchased the following 5 bonds. Each bond had a parvalue of $1,000 and an 10% yield to maturity on the purchase day.Immediately after the investor purchased them, interest rates felland each then had a new YTM of 6%. What is the percentage change inprice for each bond after the decline in interest rates? Fill inthe following table. Round your answers to the nearest cent or totwo decimal places.

Price @ 10% Price @6% Percentage Change
10-year, 10% annual coupon $ $ %
10-year zero $ $ %
5-year zero $ $ %
30-year zero $ $ %
$100 perpetuity $ $ %

6. (Ignore the drop down option all the infomration needed isavailable) Evaluating Annie Hegg's Proposed Investment in AtilierIndustries Bonds Annie Hegg has been considering investing in thebonds of Atilier Industries. The bonds were issued 5 years ago attheir $1,000 par value and have exactly 25 years remaining untilthey mature. They have an 8.0% coupon interest rate, areconvertible into 50 shares of common stock, and can be called anytime at $1,080.00. The bond is rated Aa by Moody's. AtilierIndustries, a manufacturer of sporting goods, recently acquired asmall athletic-wear company that was in financial distress. As aresult of the acquisition, Moody's and other rating agencies areconsidering a rating change for Atilier bonds. Recent economic datasuggest that expected inflation, currently at 5.0% annually, islikely to increase to a 6.0% annual rate. Annie remains interestedin the Atilier bond but is concerned about inflation, a potentialrating change, and maturity risk. To get a feel for the potentialimpact of these factors on the bond value, she decided to apply thevaluation techniques she learned in her finance course. To Do a. Ifthe price of the common stock into which the bond is convertiblerises to $30.00 per share after 5 years and the issuer calls thebonds at $1,080.00, should Annie let the bond be called away fromher or should she convert it into common stock? b. For each of thefollowing required returns, calculate the bond's value, assumingannual interest. Indicate whether the bond will sell at a discount,at a premium, or at par value. (1) Required return is 6.0%. (2)Required return is 8.0%. (3) Required return is 10.0%. c. Repeatthe calculations in part (b), assuming that interest is paidsemiannually and that the semiannual required returns are one-halfof those shown. Compare and discuss differences between the bondvalues for each required return calculated here and in part (b)under the annual versus semiannual payment assumptions. d. If Anniestrongly believes that expected inflation will rise by 1.0% duringthe next few months, what is the most she should pay for the bond,assuming annual interest? e. If the Atilier bonds are downrated byMoody's from Aa to A, and if such a rating change will result in anincrease in the required return from 8.0% to 8.75%, what impactwill this have on the bond value, assuming annual interest? f. IfAnnie buys the bond today at its $1,000 par value and holds it forexactly 3 years, at which time the required return is 7.0%, howmuch of a gain or loss will she experience in the value of the bond(ignoring interest already received and assuming annual interest)?g. Rework part (f), assuming that Annie holds the bond for 10 yearsand sells it when the required return is 7.0%. Compare your findingto that in part (f), and comment on the bond's maturity risk. h.Assume that Annie buys the bond at its current price of $983.80 andholds it until maturity. What will her current yield and yield tomaturity (YTM) be, assuming annual interest? i. After evaluatingall of the issues raised above, what recommendation would you giveAnnie with regard to her proposed investment in the AtilierIndustries bonds? a. If the price of the common stock into whichthe bond is convertible rises to $30.00 per share after 5 years andthe issuer calls the bonds at $1,080.00, should Annie let the bondbe called away from her or should she convert it into common stock?The value of the stock if the bond is converted is $ . (Round tothe nearest cent.) (Select the best choice below.) A. Annie shouldnot convert the bonds because the value of the shares is $1,500.00> $1,080.00. B. Annie should convert the bonds because the valueof the shares is $1,500.00 > $1,080.00. C. Annie should convertthe bonds because the value of the shares is $1,500.00 <$1,080.00. D. Annie should not convert the bonds because the valueof the shares is $1,500.00 < $1,080.00. b. For each of thefollowing required returns, calculate the bond's value, assumingannual interest. Indicate whether the bond will sell at a discount,at a premium, or at par value. (1) Required return is 6.0%. Thebond's value will be $ . (Round to the nearest cent.) The bondwould selling at (1) . (Select from the drop-down menu.) (2)Required return is 8.0%. The bond's value will be $ . (Round to thenearest cent.) The bond would selling at (2) . (Select from thedrop-down menu.) (3) Required return is 10.0%. The bond's valuewill be $ The bond would selling at (3) . (Select from thedrop-down menu.) c. Repeat the calculations in part (b), assumingthat interest is paid semiannually and that the semiannual requiredreturns are one-half of those shown. Compare and discussdifferences between the bond values for each required returncalculated here and in part (b) under the annual versus semiannualpayment assumptions. . (Round to the nearest cent.) (1) Requiredreturn is 6.0%. The bond's value will be $ . (Round to the nearestcent.) The bond would selling at (4) . (Select from the drop-downmenu.) (2) Required return is 8.0%. The bond's value will be $ .(Round to the nearest cent.) The bond would selling at (5) .(Select from the drop-down menu.) (3) Required return is 10.0%. Thebond's value will be $ . (Round to the nearest cent.) The bondwould selling at (6) . (Select from the drop-down menu.) (Selectall the choices that apply.) A. Under all three required returnsfor annual interest payments the bonds are consistently pricedhigher than for semiannual interest payments. B. When the requiredreturn is above (below) the coupon the bond sells at a discount(premium). When the required return and coupon are equal the bondsells at par. C. Under all three required returns for both annualand semiannual interest payments the bonds are consistent in theirdirection of pricing. D. When the change is made from annual tosemiannual payments the value of the premium bond increases and thevalue of the par bond stays the same while the value of thediscount bond decreases. This difference is due to the highereffective return associated with more frequent compounding. d. IfAnnie strongly believes that expected inflation will rise by 1.0%during the next few months, what is the most she should pay for thebond, assuming annual interest? The bond's value will be $ . (Roundto the nearest cent.) (Select the best choice below.) A. The bondprice would drop to $818.46. This amount is the maximum Annieshould pay for the bond. B. The bond price would drop to $817.44.This amount is the maximum Annie should pay for the bond. C. Thebond price would drop to $901.77. This amount is the maximum Annieshould pay for the bond. D. The bond price would drop to $924.81.This amount is the maximum Annie should pay for the bond. e. If theAtilier bonds are downrated by Moody's from Aa to A, and if such arating change will result in an increase in the required returnfrom 8.0% to 8.75%, what impact will this have on the bond value,assuming annual interest? The bond's value will be $ . (Round tothe nearest cent.) (Select the best choice below.) A. The value ofthe bond would decline to $901.77 due to the higher required returnand the inverse relationship between bond yields and bond values.B. The value of the bond would decline to $818.46 due to the higherrequired return and the inverse relationship between bond yieldsand bond values. C. The value of the bond would decline to $924.81due to the higher required return and the inverse relationshipbetween bond yields and bond values. D. The value of the bond woulddecline to $817.44 due to the higher required return and theinverse relationship between bond yields and bond values. f. IfAnnie buys the bond today at its $1,000 par value and holds it forexactly 3 years, at which time the required return is 7.0%, howmuch of a gain or loss will she experience in the value of the bond(ignoring interest already received and assuming annual interest)?The bond's value will be $ . (Round to the nearest cent.) (Selectthe best choice below.) A. The bond would increase in value andAnnie would earn $120.61. B. The bond would increase in value andAnnie would earn $110.61. C. The bond would increase in value andAnnie would earn $91.08. D. The bond would increase in value andAnnie would earn $130.61. g. Rework part (f), assuming that Annieholds the bond for 10 years and sells it when the required returnis 7.0%. Compare your finding to that in part (f), and comment onthe bond's maturity risk. The bond's value will be $ . (Round tothe nearest cent.) (Select the best choice below.) A. The bondwould increase in value and Annie would earn a gain of $130.61. Thebond has a smaller reaction to yield changes as the maturityshortens. B. The bond would increase in value and Annie would earna gain of $110.61. The bond has a smaller reaction to yield changesas the maturity shortens. C. The bond would increase in value andAnnie would earn a gain of $91.08. The bond has a smaller reactionto yield changes as the maturity shortens. D. The bond wouldincrease in value and Annie would earn a gain of $120.61. The bondhas a smaller reaction to yield changes as the maturity shortens.h. Assume that Annie buys the bond at its current price of $983.80and holds it until maturity. What will her current yield and yieldto maturity (YTM) be, assuming annual interest? The yield tomaturity will be %. (Round to two decimal places.) i. Afterevaluating all of the issues raised above, what recommendationwould you give Annie with regard to her proposed investment in theAtilier Industries bonds? (Select from the drop-down menu and slectall the choices that apply.) Annie (7) invest in the Atilier bond.There are several reasons for this conclusion. A. An increase ininterest rates is likely due to the possibility of higher inflationthus driving the price down. B. The term to maturity is long andthus the maturity risk is high. C. An increase in interest rates islikely due to the potential downgrading of the bond thus drivingthe price down. D. The price of $983.80 is well above her minimumprice of $901.77 assuming an increase in interest rates of 1.0%.(1) a premium (2) a discount par value (6) a premium (7) a discountpar value a premium (3) a discount par value should probably notshould probably a premium (4) a discount par value a premium (5) adiscount par value a premium a discount par value

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