finance data bank

[i]. The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the nominal annual yield is 14 percent. Given these facts, what is the annual coupon rate on this bond?

a. 10%

b. 12%

c. 14%

d. 17%

e. 21%

Tough:

[ii]. Recently, Ohio Hospitals Inc. filed for bankruptcy. The firm was reorganized as American Hospitals Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to maturity and a coupon rate of 10 percent, paid annually. The new agreement allows the firm to pay no interest for 5 years. Then, interest payments will be resumed for the next 5 years. Finally, at maturity (Year 10), the principal plus the interest that was not paid during the first 5 years will be paid. However, no interest will be paid on the deferred interest. If the required annual return is 20 percent, what should the bonds sell for in the market today?

a. $242.26

b. $281.69

c. $578.31

d. $362.44

e. $813.69

[iii]. GP&L sold $1,000,000 of 12 percent, 30-year, semiannual payment bonds 15 years ago. The bonds are not callable, but they do have a sinking fund which requires GP&L to redeem 5 percent of the original face value of the issue each year ($50,000), beginning in Year 11. To date, 25 percent of the issue has been retired. The company can either call bonds at par for sinking fund purposes or purchase bonds on the open market, spending sufficient money to redeem 5 percent of the original face value each year. If the nominal yield to maturity (15 years remaining) on the bonds is currently 14 percent, what is the least amount of money GP&L must put up to satisfy the sinking fund provision?

a. $43,856

b. $50,000

c. $37,500

d. $43,796

e. $39,422

Financial Calculator Section

Multiple Choice: Problems

[iv]. A corporate bond with a $1,000 face value pays a $50 coupon every six months. The bond will mature in ten years, and has a nominal yield to maturity of 9 percent. What is the price of the bond?

a. $ 634.86

b. $1,064.18

c. $1,065.04

d. $1,078.23

e. $1,094.56

[v]. A bond with a $1,000 face value and an 8 percent annual coupon pays interest semiannually. The bond will mature in 15 years. The nominal yield to maturity is 11 percent. What is the price of the bond today?

a. $ 784.27

b. $ 781.99

c. $1,259.38

d. $1,000.00

e. $ 739.19

[vi]. Palmer Products has outstanding bonds with an annual 8 percent coupon. The bonds have a par value of $1,000 and a price of $865. The bonds will mature in 11 years. What is the yield to maturity on the bonds?

a. 10.09%

b. 11.13%

c. 9.25%

d. 8.00%

e. 9.89%

[vii]. A corporate bond matures in 14 years. The bond has an 8 percent semiannual coupon and a par value of $1,000. The bond is callable in five years at a call price of $1,050. The price of the bond today is $1,075. What are the bond’s yield to maturity and yield to call?

a. YTM = 14.29%; YTC = 14.09%

b. YTM = 3.57%; YTC = 3.52%

c. YTM = 7.14%; YTC = 7.34%

d. YTM = 6.64%; YTC = 4.78%

e. YTM = 7.14%; YTC = 7.05%

[viii]. A 12-year bond pays an annual coupon of 8.5 percent. The bond has a yield to maturity of 9.5 percent and a par value of $1,000. What is the bond’s current yield?

a. 6.36%

b. 2.15%

c. 8.95%

d. 9.14%

e. 10.21%

[ix]. A bond matures in 12 years, and pays an 8 percent annual coupon. The bond has a face value of $1,000, and currently sells for $985. What is the bond’s current yield and yield to maturity?

a. Current yield = 8.00%; yield to maturity = 7.92%.

b. Current yield = 8.12%; yield to maturity = 8.20%.

c. Current yield = 8.20%; yield to maturity = 8.37%.

d. Current yield = 8.12%; yield to maturity = 8.37%.

e. Current yield = 8.12%; yield to maturity = 7.92%.

[x]. A corporate bond has a face value of $1,000, and pays a $50 coupon every six months (i.e., the bond has a 10 percent semiannual coupon). The bond matures in 12 years and sells at a price of $1,080. What is the bond’s nominal yield to maturity?

a. 8.28%

b. 8.65%

c. 8.90%

d. 9.31%

e. 10.78%

[xi]. A 20-year bond with a par value of $1,000 has a 9 percent annual coupon. The bond currently sells for $925. If the bond’s yield to maturity remains at its current rate, what will be the price of the bond 5 years from now?

a. $ 966.79

b. $ 831.35

c. $1,090.00

d. $ 933.09

e. $ 925.00

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