Notes on Investment Test

Chapter 7 Test Review

Problem 7-1
Bond valuation
Callaghan Motors' bonds have 5 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 6.5%, and the yield to maturity is 11%. What is the bond's current market price? Round your answer to the nearest cent.

Annual Interest Payment = Par Value * Coupon Rate $1,000 * 6.5%= 65

Financial Calculator
N= 5
I/YR= 11%
PMT= -65
FV= -$1,000 Find PV?

Bond’s Current Market Price= 833.68

Problem7-2
Yield to maturity and future price
A bond has a $1,000 par value, 12 years to maturity, and a 9% annual coupon and sells for $1,110.
a. What is its yield to maturity (YTM)? Round your answer to two decimal places.
Par Value= $1,000
Coupon Rate= 9%
No of Years= 12 yrs.
Current Market Price of Bond= $1,110 Annual Interest Payment = Par Value * Coupon Rate
$1,000 * 9%= 90

Financial Calculator
N= 12
PMT= 90
PV= -$1,110
FV=1,000
I/YR=?

YTM = 7.57%

b. Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Round your answer to the nearest cent.
Financial Calculator N= 12-2= 10
PMT= 90
PV=?
FV= -1,000
I/YR? 7.573%
Bond’s Current Market Price= $1,097.62
Problem 7-3
Bond valuation
Nungesser Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 10 years to maturity, and an 10.5% YTM. What is the bond's price? Round your answer to the nearest cent.
Par Value= $1,000
Semiannual Coupon Rate= 12% /2= 6% Semiannual Yield to Maturity= 10.5/2= 5.25%
No of Years= 10*2 = 20

Semiannual Interest Payment= 1,000 * 6%= 60 Financial Calculator
N= 20
I/YR= 5.25%
PMT= 60
FV= 1,000 Find PV?
Bond’s Price= $1,091.52

Problem 7-4
Yield to maturity
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,143,