Homework
P9-1 (similar to)
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(Related to Checkpoint 9.1) (Floating-rate loans) The Bensington Glass Company entered into a loan agreement with the firm's bank to finance the firm's working capital. The loan called for a floating rate that was
28
asis points
(0.28
percent) over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of
2.22
percent and a minimum of
1.72
percent. Calculate the rate of interest for weeks 2 through 10.
Date
LIBOR
Week 1
1.99%
Week 2
1.67%
Week 3
1.47%
Week 4
1.37%
Week 5
1.56%
Week 6
1.65%
Week 7
1.74%
Week 8
1.89%
Week 9
1.94%
The rate of interest for week 2 is
%.
(Round to two decimal places.)
P9-3 (similar to)
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(Related to Checkpoint 9.3) (Bond valuation) Calculate the value of a bond that matures in
11
years and has a
$1,000
par value. The annual coupon interest rate is
15
percent and the market's required yield to maturity on a comparable-risk bond is
13
percent.
The value of the bond is
$nothing.
(Round to the nearest cent.)
P9-4 (similar to)
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(Related to Checkpoint 9.4) (Bond valuation) A bond that matures in
9
years has a
$1,000
par value. The annual coupon interest rate is
14
percent and the market's required yield to maturity on a comparable-risk bond is
17
percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
a. The value of this bond if it paid interest annually would be
$nothing.
(Round to the nearest cent.)
P9-6 (similar to)
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(Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will mature in
21
years with an annual coupon rate of
12
percent. Their par value will be
$1,000,
and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is
9
percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is
10
percent. What will be the price of these bonds if they receive either an A or a AA rating?
a. The price of the Pybus bonds if they receive a AA rating will be
$nothing.
(Round to the nearest cent.)
P9-7 (similar to)
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(Related to Checkpoint 9.2) (Yield to maturity) The market price is
$825
for a
9-year
ond
($1,000
par value) that pays
9
percent annual interest, but makes interest payments on a semiannual basis
(4.5
percent semiannually). What is the bond's yield to maturity?
The bond's yield to maturity is
nothing%.
(Round to two decimal places.)
P9-14 (similar to)
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(Related to Checkpoint 9.2) (Yield to maturity) Abner Corporation's bonds mature in
25
years and pay
12
percent interest annually. If you purchase the bonds for
$1,300,
what is your yield to maturity?
Your yield to maturity on the Abner bonds is
nothing%.
(Round to two decimal places.)
P9-23 (similar to)
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(Related to Checkpoint 9.6)
(Inflation
and interest
ates)
What would you expect the nominal rate of interest to be if the real rate is
4.5
percent and the expected inflation rate is
6.6
percent?
The nominal rate of interest would be
nothing%.
(Round to two decimal places.)