A. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 5.8%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the price of the bond? (in dollars)
B. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 85% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (in percentage %)
A. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 5.8%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the price of the bond? (in dollars)
B. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 85% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (in percentage %)
Related questions
| Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 8.2%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. The price of the bond is $717.09 Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 85% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? CALCULATE YIELD TO MATURITY. The question bolded above is what needs to be answered. The information prior to that will help solve it. |
| a. | Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 5.2%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 11%. What is the price of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Price of the bond | $ |
| b. | Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Yield to maturity | % |
