3. IBM 8 3/8 bonds maturing in ten years are trading at 117. Let's assume you have investigated these bonds and believe an appropriate required rate of return is 7.5%. Evaluate this bond by both the Present Value and IRR approaches. Clearly label your work for each approach. 4. Motorola zero coupon bonds (i.e., they make no interest payments) maturing in seven years are trading at 86.4. Because they pay no interest, the investor is promised only the face amount at maturity. Calculate the YTM for these bonds.
Added by Kim G.
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Present Value Approach for IBM bonds: To evaluate the IBM bonds using the Present Value approach, we need to calculate the present value of the bond's future cash flows (interest payments and principal repayment) and compare it to the current market Show more…
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BOND VALUATION: Nungesser Corporation's outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 8 years to maturity, and an 8.5% YTM. What is the bond's price? BOND VALUATION and YIELD TO MATURITY: Suppose a 10-year, $1,000 bond with an 8% coupon rate and semiannual coupons is trading for $1,034.74. What is the bond's yield to maturity? If the bond's yield to maturity changes to 9%, what will the bond's price be? USING FINANCE CALCULATOR (but showing what is PV, FV, PMT, I/Y, AND N)
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The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 7 percent for $1,160. The bond has 15 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Two years from now, the YTM on your bond has declined by 1 percent and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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