Financial Management Problem case study

FN 215 Financial Management

Problem Set # 7

Rules for all problem sets:

Do your own work. Do not copy material from others.

Problem sets must be submitted in hard copy form. Do not submit electronically.

Answer all 5 questions.

Question 1

You are analyzing a bond with the following characteristics.

Par value $1,500 Annual coupon 4.95%, interest payable annually

Yield-to-maturity 7.50% annually

Bond was issued 3 years ago; it matures 17 years from today.

Calculate this bonds current price using the calculator method. If you use a financial calculator, show keystrokes. If you use a regular calculator, show the equations. Round to nearest dollar.

Question 2

From Question 1, . Round to nearest penny. Report the amount in good form (i.e., appropriate dollar sign and cents). You must print out and formulas.

Question 3

Recalculate the bond price from Question 1 data, but interest is payable monthly. ONLY. Round to nearest penny. Report the amount in good form. Again, print out Excel spreadsheet results and formulas.

Question 4

Is the bond in Question 1 priced at premium or discount? Explain.

Question 5

Using Excel ONLY, determine present values for each of the following problems. Attach print-out with answers in good form and the formulas. Round to nearest dollar.

A.$1.0 million per year; cash flows atbeginningof the year; discount rate 4.5%, 20 years

B.$25,000 received at the end of Year 30, discount rate 3.25%

C.$50,000 per year for 10 years; $200,000 cash flow at the end of 10 years; discount rate 6.4%