Exercise 14-2 (Algo) Determine the price of bonds in various situations [LO14-2] Determine the price of a $1.7 million bond issue under each of the following independent assumptions: 1. Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%, 2. Maturity 12 years, interest paid semiannually, stated rate 10%, effective (market) rate 12%. 3. Maturity 12 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%. 4. Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%. 5. Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1.) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%. Note: Round your answer to the nearest whole dollar. Price of bonds <Required 1 Required 2 >
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Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of 11 percent. Both bonds have 8 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of Bond J? A. -10.95% B. -9.95% C. -11.95% D. -11.93% If interest rates suddenly rise by 2 percent, what is the percentage price change of Bond K? A. -10.58% B. 32.21% C. -8.60% D. -10.60% If interest rates suddenly fall by 2 percent, what is the percentage price change of Bond J? A. 13.95% B. -17.48% C. 13.93% D. -11.97% If interest rates suddenly fall by 2 percent, what is the percentage price change of Bond K? A. -10.62% B. 18.48% C. 12.15% D. 12.27%
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1) If you were to purchase 5 bonds with a par value of $1000 each with a 7% coupon rate payable annually. How much interest will you earn after 2 years? Show your work. 2) Decide which of the following bonds would bring the greater rate of return if kept until maturity. Both bonds have a $1000 par value and assume they can be sold at face value upon maturity. Bond 1 has 10 years to maturity with a coupon rate of 5% and a price of $900. Bond 2 has 8 years to maturity with a coupon rate of 6% and a price of $875. Determine which bond would have a higher annual rate of return based on time until maturity and total return from the bond. Show all calculations.
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