Advanced Financial Management Assignment I

Last Date to Submit : 28 Jan 2011 (Friday)

Bond Valuation 1. The Rs.1, 000 face value ABC bond has a coupon rate of 6%, with interest paid semi-annually, and matures in 5 years. If the bond is priced to yield 8%, what is the bond's value today? 2. The HIJ bond has a current price of Rs.800, a maturity value of Rs. 1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond's annual coupon rate? 3. The NOP bond has an 8% coupon rate (semi-annual interest), a maturity value of Rs.1,000, matures in 5 years, and a current price of Rs.1,200. What is the NOP's yield-to-maturity? 4. You are considering the purchase of an issue of Danville Corporations bonds. When originally issued, the bonds had a face value of Rs.1,000, carried an 8% coupon rate of interest, and matured in fifteen years. Interest is paid semi-annually. Five years have now passed since the issuance of the bonds. BB-rated bonds of similar maturities now carry an interest rate of 12%. How much should you be willing to pay for the bonds? 5. What is the value of a zero coupon bond that has five years remaining to maturity and has a yield to- maturity of : (a) 6%, (b) 8% and (c)10% 6. A zero-coupon bond requires a 5% rate of return and has 4 years remaining to maturity. What should this bond sell for? 7. A zero-coupon bond is selling for Rs.50.26 and has 10 years remaining to maturity. What rate of interest is required by the market if we assume semi-annual compounding? 8. What is the value of a zero-coupon bond that has 6 years to maturity and an applicable interest rate of 9%?