FIN 311

FALL 2019

Homework 4

Please answer all questions, do not leave any question unanswered. You can submit this to me at the beginning of class or through Moodle, your choice. Typed answers are preferred but not required. Homework is Due on 11/12/2019.

MCQ:

• A company would call its outstanding callable bonds if:
• If a 15-year bond with a face value of $1,000 currently sells for $850, then
• You are considering two bonds. Bond A has a 8% annual coupon while Bond B has a 5% annual coupon. Both bonds have a 6% yield to maturity, and the YTM is expected to remain constant. If that is the case, then it must be true that:
• Morin Company’s bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 6.1% on these bonds. What is the bond’s price?

Problems: Show your work

• Nungesser Corporation’s outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond’s price?
• Callaghan Motors’ bonds have 23 years remaining to maturity. Interestis paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield to maturity is 11%. What is the bond’s current market price?
• A bond has a $1,000 par value, 12 years tomaturity, and an 8% annual coupon and sells for $980. What is its yield to maturity (YTM)?
• 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 $1,154, and currently sell at a price of $1,283.09 What are their nominal yield to maturity and their nominal yield to call?