How much should you be willing to pay for bond

Assignment Help Financial Management

Reference no: EM131014507

Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 11%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Round your answer to the nearest cent.

Reference no: EM131014507

Questions Cloud

Explain the five stages of the consumer buying process : Identify and explain the five stages of the consumer buying process. Give examples of marketing activities designed to influence each stage

What dimensions should it have so as to minimize the cost : The material for the top and bottom cost cents per square cm and the material for the side costs 1 cent per square cm. What dimensions should it have so as to minimize the cost of the materials?

Forecast turns out to be correct and its price-to-earnings : May Inc. just reported a net income of $8000000 and its current stock price is $34.00 per share. May Inc. is forecasting an increase of 25% of its net income next year, but it also expects it will have to issue 1,500,000 new shares of stock. If May I..

Find the area of the largest rectangle that can be inscribed : A rectangle is inscribed within the parabola y = 9 - x2 with its bottom side lying on the x-axis the comers of the top side on the parabola. Find the area of the largest rectangle that can be inscribed in this fashion.

How much should you be willing to pay for bond : Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 11%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yie..

Calculate the return on common equity in the second year : The company had assets of $7050 million in the frist year and $11278 million in the second year. Common equity was equal to $3750 million in the first year, 100% of earnings were paid out as dividends in the first, and the firm did not issue new stoc..

Discuss the importance of trust in business : 1. Discuss the importance of trust in business. Can you cite examples? What happens when trust is lost? 2. What do you think the Harris Interactive research on corporate reputation means to the companies involved?

Law firm to proceed fairly and profitably : Lawyers are changing their pay structures. It used to be that they would bill hourly (top dollar for top lawyers, less experienced helpers had cheaper rates). Now they’re beginning to price like consultants—per project. What advice would you give a l..

Describe how people can identify their federal tax brackets : Explain which account would earn more money for the investor: a traditional IRA or a Roth IRA. Support your statements with reasons and examples.

User Account

All Pages