BUSN 379 Coupon Rates/TUTORIALOUTLET DOT COM BUSN 379 Coupon Rates/TUTORIALOUTLET DOT COM

BUSN 379 Coupon Rates
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Chapter 4: 8, 17, and 18
8. Coupon Rates. Volbeat Corporation has bonds on the market with
10.5 years to maturity, a YTM of 8.4
percent, and a current price of $945. The bonds make semiannual
payments. What must the coupon rate
be on the bonds?
17. Interest Rate Risk. Bond J has a coupon rate of 4 percent. Bond S
has a coupon rate of 14 percent.
Both bonds have 10 years to maturity, make semiannual payments,
and have a YTM of 8 percent. If
interest rates suddenly rise by 2 percent, what is the percentage price
change of these bonds? What if
rates suddenly fall by 2 percent instead? What does this problem tell
you about the interest rate risk of
lower-coupon bonds?
18. Bond Yields. PK Software has 7.5 percent coupon bonds on the
market with 22 years to maturity.
The bonds make semiannual payments and currently sell for 97
percent of par. What is the current yield
on PK’s bonds? The YTM? The effective annual yield?
Chapter 5: 1, 4, and 12
1. Calculating Payback. What is the payback period for the following
set of cash flows? Year Cash Flow
0 −$5,900
1 2,000
2 2,700
3 1,500
4 900
4. Calculating AAR. You’re trying to determine whether or not to
expand your business by building a new
manufacturing plant. The plant has an installation cost of $14 million,
which will be depreciated straightline to zero over its four-year life. If