FIN101/102/103/105 Exercises on Bonds and their Valuation

1. Enterprise, Inc., bonds have a 9 percent coupon rate. The interest is paid semi-annually and the bonds mature in 8 years. Their par value is $1,000. If your required rate of return is 8 percent, what is the value of the bond? What is its value if the interest is paid annually? 2. A 2-year bond pays 5 percent interest annually on a $1,000 par value. The market price of the bond is $1,075 and your required rate of return is 7 percent. What is your expected rate of return (yield to maturity)? Determine the value of the bond to you, given the required rate of return. Should you purchase the bond? What if the bond's market price is $875? 3. A 15-year bond with an 8 percent annual coupon has a face value of $1,000. The bonds yield to
maturity is 7 percent. What is the bonds current yield? 4. Cold Boxes Ltd. has 100 bonds outstanding (maturity value = $1,000). The nominal required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. What is the annual coupon interest rate? 5. Meade Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semiannual basis. What are the current yield and capital gains yield on the bonds for this year? (Assume that interest rates do not change over the course of the year.)