You are considering a 10-year, 51,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually. If you require an “effective” annual interest rate (not a nominal rate) of 8.16%, how much should you be willing to pay for the bond? 7-17 BOND RETURNS fast year Joan purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 10-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.79%. If Joan sold the bond today for $1,060.49, what rate of return would she have earned for the past year? 7-18 YIELD TO MATURITY AND VIEW TO CALL Kaufman Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,175. The bonds may be called in 5 years at 109% of face value (Call price = $1,090). a. What is the yield to maturity? b. What is the yield to call if they are called in 5 years? c Which yield might investors expect to earn on these bonds? Why? d. The bond’s indenture indicates that the call provision gives the firm the right to call the bonds at the and of each year beginning in Year 5. In Year 5, the bonds may be called at 109% of face value; but in each of the next 4 years, the call percentage will decline by 1% Thus, in Year 6,
Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have ken most likely? 7-13 PRICE AND YIELD An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21%. What are the bond’s price and YTN’ (Hint: Refer to footnote 7 for the definition of the current yield and to Table 7.1.) 7-14 EXPECTED INTEREST RATE Lloyd Corporation’s 14% coupon rate, semiannual payment, SUCCO par value bonds, which mature in 30 years, are callable 5 years from today at $1,050. They sell at a price of 51,353.54, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds’ remaining life? b. If Lloyd plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par? 7-15 BOND VALUATION Bond X is noncallable and has 20 years to maturity, a 9% annum coupon, and a $1,000 par value. Your required return on Bond Xis 10%; if you buy it. %, . plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the to maturity on a 15-year bond with similar risk will be 8.5%. How much should yol willing to pay for Bond X today? (Hint: You will need to know how much the bond to worth at the end of 5 years.)
Six years ago the Singleton Company rued 20.year bonds with a 14% annual coupon rate at their $LOW par value. The bonds had a 9% call premium, with 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were calk d. Explain why the investor should or should not be happy that Singleton called them.
7-9 YIELD TO MATURITY I Lehmann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. a. What is the yield to maturity at a current market price of (1) $829 and (2) $1,104? b. Would you pay $829 for each bond if you thought that a “fair” market interest rate for such bonds was 12%—that is, if r, — 12%? Explain your answer. 7-10 CURRENT YIELD, CAPITAL GAINS YIELD, AND YIELD TO MATURITY I looper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in was -9.86%. interest rates, the bond’s market price has fallen to $901.40. The capital gains yield last year a. What is the yield to maturity? b. For the coming year, what are the expected current and capital gains yields? (I lint: Refer to footnote 7 for the definition of the current yield and to Taw- , I ‘ C. Will the actual realized vieldx ha —–‘
7-1 BOND VALUATION Callaghan Motors’s bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8%; and the yield to maturity is 9%. What is the bond’s current market price? 7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a Pk annual coupon and sells for $985. a. What is its yield to maturity (YTM)? b. Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today? 7-3 BOND VALUATION Nungesser Corporation’s outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 8 years to maturity, and an 8.5% YTM. What is the bond’s price? 7-4 YIELD TO MATURITY A face’s bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,050, and currently sell at a price of $1,100. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds? 7-5 BOND VALUATION An investor has two bonds in his portfolio that have a face value of 51,000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.
What will the value of each bond be if the going interest rate is 5%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Why does the longer-term bond’s price vary more than the price of the shorter-term centre when interest rates change?
Distributed: Tue, 28 Nov 2017 The Geography of European Integration: Economy, Society and Institutions Kourdoumpalou Panagiota Which of the accompanying two sentences will probably be right as you would see it? Present something like two contentions to help your supposition. The foundation of a typical fiscal association in the EU was an effective advance towards more profound European mix. The possibility of a typical fiscal association in EU didn't mull over all the financial viewpoints bringing about its disappointment a couple of years after the fact. Financial and Monetary Union (EMU) speaks to a noteworthy advance in the incorporation of EU economies. It includes the coordination of financial and monetary strategies, a typical money related approach, and a typical cash, the euro. The 28 EU Member States partake in the financial association, yet a few nations have taken combination further and received the euro. The choice to frame an Economic and Monetary Union was taken by the European Council in Maastricht in December 1991, and was later cherished in the Treaty on European Union. The Economic and Monetary Union helps the EU in its procedure of financial combination. Financial incorporation brings the advantages of more prominent size, inside proficiency and strength to the EU economy in general and to the economies of the individual Member States. This offers open doors for monetary strength, higher development and greater business. On January, 1999, 11 of the 115 European Union (EU) nations framed the Economic and Monetary Union (EMU), embracing the euro as their normal money. From that point forward, in the Eurozone, the European Central Bank does a typical fiscal strategy and, to a high degree, security markets are completely incorporated ( European Commission). The formation of the Eurozone was gone before by a continuous administrative harmonization among European securities exchanges and the consummation of different limitations on out-of-state people, and furthermore by an exertion among EU nations to fulfill the Maastricht criteria for joining the Eurozone. The push to fulfill the Maastricht criteria likewise prompted betterâ€balanced monetary spending plans, which may have prompted a "genuine intermingling" of European economies, that is, an expanded synchronization in business cycles over the European economies (Julian Alworth, Giampaolo Arachi, 2008). The presentation of the euro had numerous favorable circumstances. It enhanced straightforwardness, it institutionalized the valuing in money related markets, and lessened financial specialists' exchange and data costs. At long last, the presentation of a solitary money disposed of the cash chance inside the EU and diminished the general conversion scale introduction of European stocks. This factor, together with the ostensible and genuine intermingling, ought to have prompted more homogeneous valuations of values in EMU nations (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007). One approach to assess if European securities exchanges turned out to be more incorporated amid the 1990s is to look at the development of the general impact of EU. At the point when securities exchanges are in part coordinated, both worldwide and nearby hazard factors are valued. There is a plausibility of evaluating a restrictive resource valuing model with a timeâ€varying level of coordination, which estimates the significance of EU, wide market and money dangers which are in respect to countryâ€specific hazard (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007). Each Eurozone nation has its own timeâ€varying level of securities exchange coordination. The level of combination is limited among zero and solidarity and molded on an expansive arrangement of money related, cash, and business cycle factors. These factors gauge the steady ostensible and genuine union of the European economies amid the preâ€monetary association period. Among the included factors, the most unmistakable one is every nation's forward financing cost differential with Germany which was generally utilized by market experts as a marker of the likelihood that an EU nation would in the long run figure out how to join the Eurozone. In the second 50% of the 1990s, the level of reconciliation step by step expanded to the point where individual Eurozone nation securities exchanges give off an impression of being completely incorporated into the EU showcase. There have been two fundamental factors that determined the expansion in the level of incorporation: the development of the likelihood of joining the single cash and the advancement of swelling differentials (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007). Also, monetary combination brought about businessâ€cycle intermingling. Crossâ€country return relationships and business cycles are connected. Financial and monetary strategy coordination may have prompted expanded synchronization of business cycles among EMU part nations, which could have prompted expanded relationship of expected corporate income and more homogeneous assessments of European values (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007). During the 1990s there is a procedure of expanded incorporation of European securities exchanges to the possibilities of the arrangement of EMU and the selection of the euro as the single money. Amid the 1990s, the level of combination of every nation's securities exchange with the EU advertise was contrarily identified with the two its forward loan cost differential with Germany and its expansion differential with the best three performing nations. Likewise, the expansion differential was a noteworthy marker of whether a nation with a high swelling had the capacity to accomplish ostensible union and fulfill a noteworthy measure for permission into the Eurozone. The procedure of combination was difficult, yet in the second 50% of the 1990s, securities exchanges merged toward full incorporation. As it were, their normal returns turned out to be progressively dictated by EUâ€wide showcase hazard and less by nearby hazard (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007) Finishing up, supporting proof on the theory that the possibility of EMU was the reason behind the watched increment in securities exchange mix among Eurozone nations originates from two primary sources. To start with, when we watch the involvement in the United Kingdom, an EU nation that decided not to join the Eurozone, is obviously not quite the same as whatever is left of the European securities exchanges. The UK advertise hinted at no expanded joining with the EU securities exchange. Second, the incorporation in Europe has all the earmarks of being an Eurozoneâ€specific marvel, which does not depend on conceivable concurrent worldâ€market coordination. Along these lines, now it tends to be said that the foundation of a typical financial association in the EU was an effective advance towards the European combination. Clearly the procedure of coordination was difficult, yet there was an intermingling of the securities exchanges towards full joining. At the end of the day, their normal returns turned out to be progressively controlled by EUâ€wide showcase hazard and less by neighborhood chance. References European Commission, Economic and Monetary Union. [online] Available at: http://ec.europa.eu/economy_finance/euro/emu/index_en.htm Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, (2007). The effect of EMU on the value cost of capital. Diary of International Money and Finance Julian Alworth, Giampaolo Arachi, (2008). Tax collection arrangement in EMU, Economic Papers 310 1>GET ANSWER