Financial Management is a specific area which deals with the financial decisions that corporations make and the tools and analyses used in making those decisions. The discipline as a whole may be divided among long and short-term decisions and techniques used in arriving at these decisions. The pri...
1. Callaghan Motor’s bonds have 10 years remaining to maturity. Interest is paid annually, the
bonds have a $1,000 par value, and the coupon rate is 8%. The bonds have a yield to maturity
of 9%. What is the current market price of these bonds?
2. Nungesser Corporation has issued bonds that have a 9% coupon rate, payable semi-annually.
The bonds mature in 8 years, have a face value of $1,000, yield to maturity of 8.5%. What is
the price of the bonds?
3. Wilson Wonder’s bonds have 12 years remaining to maturity. Interest is paid annually, the
bonds have a $1,000 par value, and the coupon rate is 10%. The bonds sell at a price of $850.
What is the yield to maturity?
4. The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were
sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31, 2008.
Coupon payments are made semiannually (on June 30 and December 31).
a. What was the YTM of Pennington’s bonds on January 1, 1979?
b. What was the price of the bond on January 1, 1984, 5 years later, assuming that the level of
interest rates had fallen to 10 percent?
c. On July 1, 2002, Pennington’s bonds sold for $916.42. What was the YTM at that date?
The Yield to Maturity, YTM of the bond is given by:
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