Chapter 8

Questions and Problems 5: Voluing Bonds

Even though most corporate bonds in the United States make coupon payments semiannually bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of 1,000, 19 years to maturity and a coupon rate of 4.5 percent paid annually. If the yield to maturity is 3.9 percent, what is the current price of the bond?

Questions and Problems 15: Interest Rate Risk

Insook, Inc, and Hanky Corp. both have 7 percent coupon bonds outstanding with semiannual interest payments, and both are priced at par value. The Insook, Inc., bond has 2 years to maturity, whereas the Hankyu Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? if interest rates were to suddenly fall by 2 percent Instead, what would the percentage change in the price of these bonds by then? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

Questions and Problems 16: Interest Rate Risk 

The Forest Corp, has a 6 percent coupon bond outstanding. The Grassland Company has a 14 percent bond outstanding. Both bonds have 12 years to maturity make semiannual payments, and have a YTM of 10 percent of interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower coupon bonds?

Questions and Problems 28: Voluing Bonds

The Morgan Corporation has two different bonds currently outstanding, Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and finally pays $1,000 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the We of the bond. If the required return on both these bonds 8 8 percent compounded semiannually, what is the current price of Bond M? Of Bond N?