BUSI 320 Connect Homework 5 Liberty University Complete Answer

BUSI 320 Connect Homework 5 Liberty University Complete Answer

The below shown questions is just one version sample.
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Question 1

Barry’s Steroids Company has $1,000 par value bonds outstanding at 14 percent interest. The bonds will mature in 50 years.

If the percent yield to maturity is 11 percent, what percent of the total bond value does the repayment of principal represent? Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Question 2

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 12 percent to 6 percent.

a. What is the bond price at 12 percent?

b. What is the bond price at 6 percent?

c. What would be your percentage return on investment if you bought when rates were 12 percent and sold when rates were 6 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Question 3

Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 35-year life when issued and the annual interest payment was then 14 percent. This return was in line with the required returns by bondholders at that point as described below:

Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 30 years remaining until maturity.

Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

Question 4

Katie Pairy Fruits Inc. has a $3,200, 24-year bond outstanding with a nominal yield of 17 percent (coupon equals 17% × $3,200 = $544 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Compute the current price of the bond. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

b. Find the present value of 5 percent × $3,200 (or $160) for 24 years at 12 percent. The $160 is assumed to be an annual payment. Add this value to $3,200. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

Question 5

Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent.

a. What is the current price of the bonds? Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)