Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; 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 7.5%.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.)

Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of (1)$865 and (2) $1,166? b. Would you pay$865 for each bond if you thought that a “fair” market interest rate for such bonds was 12%—that is, if $r_d$=12%? Explain your answer.

Assume that yields on U.S. Treasury securities were as follows: $$ \begin{matrix} \text{Term} & \text{Rate}\\ \text{6 monts} & \text{4.69 \\%}\\ \text{1 year} & \text{5.49}\\ \text{2 years} & \text{5.66}\\ \text{3 years} & \text{5.71}\\ \text{4 years} & \text{5.89}\\ \text{5 years} & \text{6.05}\\ \text{10 years} & \text{6.12}\\ \text{20 years} & \text{6.64}\\ \text{30 years} & \text{6.73}\\ \end{matrix} $$ a. Plot a yield curve based on these data. b. What type of yield curve is shown? c. What information does this graph tell you? d. Based on this yield curve, if you needed to borrow money for longer than 1 year, would it make sense for you to borrow short term and renew the loan or borrow long term? Explain.

Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of$1,065 and it sells for $1,200. a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would an investor be more likely to earn the YTM or the YTC? b. What is the current yield? Is this yield affected by whether the bond is likely to be called? c. What is the expected capital gains (or loss) yield for the coming year? Is this yield dependent on whether the bond is expected to be called? Explain your answer.

You are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an “effective” annual interest rate (not a nominal rate) of 7.1225%, how much should you be willing to pay for the bond?

Madsen Motors’s bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9%; and the yield to maturity is 11%. What is the bond’s current market price?