Bonds

1. A $1,000 face value bond is selling for $1,016.36. The bond pays interest semiannually and has 3.5 years to maturity. The yield to maturity is 5.48 percent. The current yield is _____ percent and the coupon rate is _____ percent.

2. Will owns a bond with a make-whole call provision. The bond matures in 14 years but is being called today. The coupon rate is 9 percent with interest paid semiannually.

What is the current call price if the applicable discount rate is 7.5 percent and the make-whole call provision applies?

3. A firm has outstanding common stock valued at $67 a share. The firm also has convertible bonds which have a $1,000 par value, a 7.5 percent, semi-annual coupon, and a time to maturity of 11 years. The bonds have a conversion ratio of 15. Comparable, non-convertible bonds have a yield to maturity of 8.2 percent.

What is the intrinsic value of this bond?

A company orders 925 of its product during each order cycle and the Economic Order Quantity assumption of constant demand applies. The average inventory level for the company is: (round to two decimal places)

Solution:

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