bus 320 connect homework 5

.
value:
1.00
points

Problem 10-2 Bond
value [LO3]

Applied Software has $1,000 par
value bonds outstanding at 16 percent interest. The bonds will mature in 20
years. Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D.

Compute the current price of the
bonds if the present yield to maturity is(Round “PV Factor” to 3 decimal places, intermediate and
final answers to2
decimal places. Omit the “$” sign in your response):

Price
of the
bond

(a) 8 percent

$

(b) 14 percent

$

(c) 11 percent

$

2.
value:
1.00
points

Problem 10-4 Bond
value [LO3]

Barry’s Steroids Company has
$1,000 par value bonds outstanding at 14 percent interest. The bonds will
mature in 40 years.

If the percent yield to maturity
is 12 percent, what percent of the total bond value does the repayment of
principal represent? Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D.(Round intermediate calculations to 2 decimal
places, “PV Factor” and final answer to 3 decimal places. Omit the
“%” sign in your response.)

Principal repayment

%

3.
value:
1.00
points

Problem 10-5 Bond
value [LO3]

Essex Biochemical Co. has a $1,000
par value bond outstanding that pays 14 percent annual interest. The current
yield to maturity on such bonds in the market is 9 percent. Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D.

Compute the price of the bonds for
these maturity dates(Round “PV
Factor” to 3 decimal places, intermediate and final answers to 2 decimal
places. Omit the “$” sign in your response):

Price
of the
bond

(a) 40 years

$

(b) 17 years

$

(c) 5 years

$

4.
value:
2.00
points

Problem 10-8 Interest
rate effect [LO3]

Refer to.mhhe.com/connect/0073530727/Images/Table%2010-1.JPG”>Table
10-1, which is based on bonds paying 10 percent interest for 20
years. Assume interest rates in the market (yield to maturity) go from 10
percent to 9 percent.

(a)

What was the bond price at 10
percent?(Round “PV Factor” to 3 decimal
places, intermediate calculations and final answers to 2 decimal places. Omit
the “$” sign in your response.)

Bond price

$

(b)

What is the bond price at 9
percent?(Round “PV Factor” to 3 decimal
places, intermediate calculations and final answers to 2 decimal places. Omit
the “$” sign in your response.)

Bond price

$

(c)

What would be your percentage
return on the investment if you bought when rates were 10 percent and sold
when rates were 9 percent?(Round “PV Factor” to 3 decimal
places, intermediate calculations and final answers to 2 decimal places.
Enter the value as positive value. Omit the “%” sign in your
response.)

(Click to select)
Profit
Loss
on investment

%

5.
value:
1.00
points

Problem 10-11 Effect
of maturity on bond price [LO3]

Refer to.mhhe.com/connect/0073530727/Images/Table%2010-2.JPG”>Table
10-2

(a)

Assume the interest rate in the
market (yield to maturity) goes down to 8 percent for the 10 percent bonds.
Using column 2, indicate what the bond price will be with a 5-year, a
25-year, and a 30-year time period.(Round
“PV Factor” to 3 decimal places, intermediate calculations and
final answers to 2 decimal places. Omit the “$” sign in your
response.)

Maturity

Bond
price

5 Years

$

25 years

30 years

(b)

Assume the interest rate in the
market (yield to maturity) goes up to 12 percent for the 10 percent
bonds. Using column 3, indicate what the bond price will be with a 5-year, a
25-year, and a 30-year period.(Round
“PV Factor” to 3 decimal places, intermediate calculations and
final answers to 2 decimal places. Omit the “$” sign in your
response.)

Maturity

Bond
price

5 Years

$

25 years

30 years

(c)

Assume the interest rate in the
market (yield to maturity) goes down to 8 percent for the 10 percent bonds.
If interest rates in the market are going down, which bond would you choose
to own?

Shortest-term bond

Longest-term bond

(d)

Assume the interest rate in the
market (yield to maturity) goes up to 12 percent for the 10 percent bonds. If
interest rates in the market are going up, which bond would you choose to
own?

Longest-term bond

Shortest-term bond

6.
value:
1.00
points

Problem 10-13 Effect
of yield to maturity on bond price [LO3]

Tom Cruise Lines, Inc., issued
bonds five years ago at $1,000 per bond. These bonds had a 30-year life when
issued and the annual interest payment was then 15 percent. This return was
in line with the required returns by bondholders at that point as described
below:

Real rate of return

5

%

Inflation premium

6

Risk premium

4

Total
return

15

%

Assume that five years later the
inflation premium is only 2 percent and is appropriately reflected in the
required return (or yield to maturity) of the bonds. The bonds have 25 years
remaining until maturity.

Compute the new price of the bond.
Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D.(Round
“PV Factor” to 3 decimal places, intermediate and final answer
to 2 decimal places. Omit the “$” sign in your response.)

New price

$

7.
value:
2.00
points

Problem 10-14
Analyzing bond price changes [LO3]

(a)

Find the present value of 3
percent × $1,000 (or $30) for 25 years at 12 percent. The $30 is assumed to
be an annual payment. Use.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D. (Round “PV Factor” to
3 decimal places, intermediate and final answerto 2 decimal places. Omit the “$” sign
in your response.)

Present value

$

(b)

Add the answer obtained in partato 1,000.(Round “PV Factor” to 3 decimal
places, intermediate and final answerto 2 decimal places. Omit the “$” sign in your
response.)

Present value

$

8.
value:
2.00
points

Problem 10-17 Deep
discount bonds [LO3]

Lance Whittingham IV specializes
in buying deep discount bonds. These represent bonds that are trading at well
below par value. He has his eye on a bond issued by the Leisure Time
Corporation. The $1,000 par value bond pays 7 percent annual interest and has
16 years remaining to maturity. The current yield to maturity on similar
bonds is 12 percent.

(a)

What is the current price of the
bonds? Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D. (Round “PV Factor” to
3 decimal places, intermediate and final answers to 2 decimal places. Omit
the “$” sign in your response.)

Current price

$

(b)

By what percent will the price of
the bonds increase between now and maturity?(Round
“PV Factor” to 3 decimal places, intermediate and final answers to
2 decimal places. Omit the “%” sign in your response.)

Price increases by

%

9.
value:
1.00
points

Problem 10-19
Approximate yield to maturity [LO3]

Bonds issued by the Tyler Food
Corporation have a par value of $1,000, are selling for $1,570, and have 20
years remaining to maturity. The annual interest payment is 14.5 percent
($145).

Compute the approximate yield to
maturity.(Do not round intermediate calculations. Round
your answer to 2 decimal places. Omit the “%” sign in your
response.)

Approximate yield to
maturity

%

10.
value:
2.00
points

Problem 10-22 Bond
value-semiannual analysis [LO3]

You are called in as a financial
analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par
value bonds have a quoted annual interest rate of 8 percent, which is paid
semiannually. The yield to maturity on the bonds is 10 percent annual interest.
There are 15 years to maturity. Use.mhhe.com/connect/0073530727/Images/Appendix_B.jpg”>Appendix
Band.mhhe.com/connect/0073530727/Images/Appendix_D.JPG”>Appendix
D.

(a)

Compute the price of the bonds
based on semiannual interest payments.(Round
“PV Factor” to 3 decimal places, intermediate and final answer to 2
decimal places. Omit the “$” sign in your response.)

Price of the bonds

$

(b)

With 10 years to maturity, if
yield to maturity goes down substantially to 8 percent, what will be the new
price of the bonds?(Round “PV Factor” to 3 decimal
places, intermediate and final answer to 2 decimal places. Omit the
“$” sign in your response.)

New price

$

1

Rest are in the doc