Q1 Q2 Q3 Security AAA Corporate AA Corporate A Corporate BBB

Q1:

Q2:

Q3:

?Security:

AAA Corporate

AA Corporate

A Corporate

BBB Corporate

BB Corporate

Yield? (%):

5.6

5.7

6.2

6.4

7.0

A mining company needs to raise? $100 million in order to begin open pit mining of a coal seam. The company will fund this by issuing? 30-year bonds with a face value of? $1000 and a coupon rating of 6.3?%, paid annually. The above table shows the yield to maturity for similar? 30-year corporate bonds of different ratings. If the mining? company\'s bonds receive a A? rating, what will be their selling? price?

A. $1,216.17

B. $1,013.48

C. $810.78

D. $1,418.87

Q4:

Luther Industries needs to raise? $25 million to fund a new office complex. The company plans on issuing? ten-year bonds with a face value of? $1000 and a coupon rate of 6.8?%

?(annual payments). The following table summarizes the YTM for similar? ten-year corporate bonds of various credit? ratings:

Rating

AAA

AA

A

BBB

BB

YTM

6.84?%

7.04?%

7.14?%

7.54?%

8.04?%

Assuming that? Luther\'s bonds receive a AAA? rating, the price of the bonds will be closest? to:

A. $798

B. $1,197

C. $997

D.$ 1,396

?Security:	AAA Corporate	AA Corporate	A Corporate	BBB Corporate	BB Corporate
Yield? (%):	5.6	5.7	6.2	6.4	7.0

What must be the price of a $10,000 bond with a 6.9% coupon rate, semiannual coupons, and nine years to maturity if it has a yield to maturity of 11% APR? O A. $7,695 OB. $10.772 O C. $9,233 O D. $6,156

Solution

1. FV =10000, PMT = 345.0, N = 18, rate = 5.5%

use PV function in Excel

price of bond = 7,695

2. price = 100/1.065 = 93.90

3. FV = 1000, N = 30, PMT = 63, rate = 6.20%

use PV function in Excel

price = 1,013.48

4.

FV = 1000, N = 10, PMT = 68, rate = 6.84%

use PV function in Excel

price = 997