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CHAPTER 07—BONDS AND THEIR VALUATION
capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.
75. 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 8.2% on these bonds. What is the bond's price?
a.
$903.04
b.
$925.62
c.
$948.76
d.
$972.48
e.
$996.79
76. Ryngaert Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and an
annual coupon of 5.7%. If the current market interest rate is 7.0%, at what price should the bonds sell?
a.
$817.12
b.
$838.07
c.
$859.56
d.
$881.60
CHAPTER 07—BONDS AND THEIR VALUATION
e.
$903.64
77. Adams Enterprises' noncallable bonds currently sell for $1,120. They have a 15-year maturity, an annual coupon of
$85, and a par value of $1,000. What is their yield to maturity?
a.
5.84%
b.
6.15%
c.
6.47%
d.
6.81%
e.
7.17%
78. Dyl Inc.'s bonds currently sell for $1,040 and have a par value of $1,000. They pay a $65 annual coupon and have a
15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?
a.
5.78%
b.
6.09%
c.
6.39%
CHAPTER 07—BONDS AND THEIR VALUATION
d.
6.71%
e.
7.05%
79. Radoski Corporation's bonds make an annual coupon interest payment of 7.35%. The bonds have a par value of
$1,000, a current price of $1,130, and mature in 12 years. What is the yield to maturity on these bonds?
a.
5.52%
b.
5.82%
c.
6.11%
d.
6.41%
e.
6.73%
80. Sadik Inc.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105 annual coupon and have a
15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?
a.
6.63%
b.
6.98%
CHAPTER 07—BONDS AND THEIR VALUATION
c.
7.35%
d.
7.74%
e.
8.12%
81. Malko Enterprises' bonds currently sell for $1,050. They have a 6-year maturity, an annual coupon of $75, and a par
value of $1,000. What is their current yield?
a.
7.14%
b.
7.50%
c.
7.88%
d.
8.27%
e.
8.68%
82. Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The
bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 8.4% nominal yield to
maturity on this investment, what is the maximum price you should be willing to pay for the bond?
a.
$1,105.69
b.
$1,133.34
c.
$1,161.67
CHAPTER 07—BONDS AND THEIR VALUATION
d.
$1,190.71
e.
$1,220.48
83. Grossnickle Corporation issued 20-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year
ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now
have 19 years to maturity?
a.
$1,113.48
b.
$1,142.03
c.
$1,171.32
d.
$1,201.35
e.
$1,232.15
CHAPTER 07—BONDS AND THEIR VALUATION
84. McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000
par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred
to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current
levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM;
it is possible to get a negative answer.)
a.
2.62%
b.
2.88%
c.
3.17%
d.
3.48%
e.
3.83%
85. Taussig Corp.'s bonds currently sell for $1,150. They have a 6.35% annual coupon rate and a 20-year maturity, but
they can be called in 5 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and
refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into
the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these
bonds?
a.
3.42%
b.
3.60%
c.
3.79%
d.
3.99%
e.
4.20%
CHAPTER 07—BONDS AND THEIR VALUATION
86. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield
to maturity remains at its current rate, what will the price be 5 years from now?
a.
$884.19
b.
$906.86
c.
$930.11
d.
$953.36
e.
$977.20
87. Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The
going interest rate (rd) is 6.20%, based on semiannual compounding. What is the bond's price?
a.
$1,047.19
b.
$1,074.05
c.
$1,101.58
d.
$1,129.12
CHAPTER 07—BONDS AND THEIR VALUATION
e.
$1,157.35
88. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from
historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:
Long-term debt (bonds, at par)
$23,500,000
Preferred stock
2,000,000
Common stock ($10 par)
10,000,000
Retained earnings
4,000,000
Total debt and equity
$39,500,000
The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from
today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?
a.
$17,436,237
b.
$17,883,320
c.
$18,330,403
d.
$ 7,706,000
e.
$ 7,898,650
CHAPTER 07—BONDS AND THEIR VALUATION
89. Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments,
and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of
$1,120. What is the bond's nominal yield to call?
a.
6.20%
b.
6.53%
c.
6.85%
d.
7.20%
e.
7.55%
90. O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to
CHAPTER 07—BONDS AND THEIR VALUATION
maturity is 9.25%, they pay interest semiannually, and they sell at a price of $975. What is the bond's nominal coupon
interest rate?
a.
7.32%
b.
7.71%
c.
8.12%
d.
8.54%
e.
8.99%
91. Kebt Corporation's Class Semi bonds have a 12-year maturity and an 8.75% coupon paid semiannually (4.375% each
6 months), and those bonds sell at their $1,000 par value. The firm's Class Ann bonds have the same risk, maturity,
nominal interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. At what price should
the annual payment bond sell?
a.
$ 937.56
b.
$ 961.60
c.
$ 986.25
d.
$1,010.91
e.
$1,036.18
CHAPTER 07—BONDS AND THEIR VALUATION
92. Moon Software Inc. is planning to issue two types of 25-year, noncallable bonds to raise a total of $6 million, $3
million from each type of bond. First, 3,000 bonds with a 10% semiannual coupon will be sold at their $1,000 par value to
raise $3,000,000. These are called "par" bonds. Second, Original Issue Discount (OID) bonds, also with a 25-year
maturity and a $1,000 par value, will be sold, but these bonds will have a semiannual coupon of only 6.25%. The OID
bonds must be offered at below par in order to provide investors with the same effective yield as the par bonds. How
many OID bonds must the firm issue to raise $3,000,000? Disregard flotation costs, and round your final answer up to a
whole number of bonds.
a.
4,228
b.
4,337
c.
4,448
d.
4,562
e.
4,676
CHAPTER 07—BONDS AND THEIR VALUATION
