Exam 15: Bond Valuation and Sinking Funds

A $50 000, 6% bond with semi-annual coupons redeemable at par on April 25, 2018, was purchased on June 25, 2009, at 94.378. What was the approximate yield rate?

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Question 1

Correct Answer:

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Quoted price = 50000(0.94375) = $47 187.50
Redemption price = $50 000.00
Average book value = .5(50 000 + 47 187.50) = $48 593.75
the number of interest payments to maturity is 9(2)=18
Total interest = 18(50000)(.03) = $27 000.00
Bond discount = 50 000.00 - 47 187.50 = $2 812.50
Average income per payment interval = (27 000 + 2 812.50) = $1656.25
Approximate value of i = = .0340836
Approximate yield = .0340836 * 2 = 6.81672%

A $50 000 bond bearing interest at 6.5% bond payable semi-annually matures in 10 years. If it is bought to yield 5.7% compounded semi-annually, what is the purchase price of the bond?

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Question 2

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FV=$50 000; n=10(2)=20; P/Y=C/Y=2; PMT=50 000(0.065) =$1625; i= =0.0285 PP = 50000(1.0285)-20 +1625 = 28502.57 + 24514.61
= $53 017.18

A $1000, 6% bond redeemable at par with semi-annual coupons was purchased 10 years before maturity to yield 5% compounded semi-annually. The bond was sold 3 years later at 102. Calculate the gain or loss on the sale of the bond.

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Question 3

Correct Answer:

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FV = 1000; P/Y=2; C/Y=2; n = (10 - 3)(2) = 14; b = 3%; i = 2.5%
Since b > i, the bond sells at a premium
Premium = [0.03(1000) - 0.025(1000)] = 5(11.690912)
= $58.45
Programmed solution:
PMT = (0.03 x 1000 - 0.025 x 1000) = 5 The purchase price is 1000 + 58.45 = $1058.45
The proceeds from the bond are 1000(1.02)=$1020.00
The loss on the sale is 1058.45 - 1020 = $38.45

What is the purchase price of a bond that has 4 years and 6 months until it matures? The face value of the bond is $3000 and the coupon rate is 5.2% compounded semi-annually. The yield rate is 7.5% compounded semi-annually.

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Question 4

A 50 000 bond bearing interest at 5.5% payable semi-annually is redeemable at par on August 10, 2033. The bond is sold on the primary market on December 10, 2013, to yield 5% compounded semi-annually. Determine a) calculate the market price; b) the accrued interest; c) the cash price.

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Question 5

Bonds with a face value of $130 000 redeemable at par bearing 4.5% coupons payable quarterly are sold six years before maturity to yield 5.25% quarterly. Determine a) the premium or discount; b) the purchase price?

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Question 6

A $10 000.00, 5% bond with semi-annual coupons redeemable at 105 in 23 years is purchased at 102.5. What is the approximate yield rate?

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Question 7

A $100 000.00, 7% bond with semi-annual coupons redeemable at 105 on November 1, 2001, is purchased on July 23, 1999, to yield 8% compounded semi-annually. Determine the quoted price.

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Question 8

The Cochrane Board of Education financed the acquisition of a new school site through a $400 000 long-term promissory note due in 17 years. Interest on the promissory note is 7.25% compounded semi-annually and is payable at the end of every six months. To provide for the redemption of the note, the board agreed to make equal payments at the end of every six months into a sinking fund paying 5% compounded semi-annually. a) What is the semi-annual interest payment? b) What is the size of the semi-annual payment into the sinking fund? c) What is the annual cost of the debt? d) Compute the book value of the debt after 3 years. e) Compute the increase in the sinking fund in the 37th payment interval. f) Construct a partial sinking fund schedule showing details, including the book value of the debt, for the first three years, the last three years, and totals.

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Question 9

A $1000, 6.5% bond redeemable at par in four years bears coupons payable annually. Compute the premium or discount and the purchase price if the yield, compounded annually, is 7.5%.

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Question 10

A $40 000 bond with semi-annual coupon payments at 5.5% compounded semi-annually is redeemable at par in 12 years. Calculate the yield rate if the bond is purchased at 102.5.

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Question 11

A $100 000, 8% bond with semi-annual coupons redeemable at par on April 25, 2018, was purchased on June 25, 2009, at 94.125. What was the approximate yield rate?

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Question 12

A $10 000, 7.2% bond with semi-annual coupons is purchased 3 years before maturity. Calculate the discount or premium if the bond is sold to yield 6% compounded semi-annually.

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Question 13

A $5000.00 6.5% bond redeemable at 109 with interest payable annually is purchased six years before maturity to yield 7% compounded annually. Construct the appropriate bond schedule.

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Question 14

Find the gain or loss on the sale without constructing a bond schedule for a $100 000, 8% bond with semi-annual coupons redeemable at par purchased eleven-and-a-half years before maturity to yield 9% compounded semi-annually. The bond was sold five years later at 99.125.

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Question 15

Find the gain or loss on the sale without constructing a bond schedule for three $100 000, 5.5% bonds with quarterly coupons redeemable at par on September 1, 2017, bought on May 1, 2011, to yield 6% compounded quarterly. The bonds were sold on January 21, 2014, at 93.5.

(Essay)

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(80)

Question 16

A $100 000.00, 7.2% bond with quarterly coupons redeemable at par is purchased 11 years before maturity to yield 6% compounded semi-annually. Determine the premium or discount.

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Question 17

The Town of The Pas bought rescue equipment for $176 000. The financing agreement provides for annual interest payments and equal payments at the end of each year into a sinking fund for 13 years. After 13 years the proceeds of the sinking fund will be used to retire the principal. Interest on the debt is 6.5% compounded annually and interest earned by the sinking fund is 5.1% compounded annually. a) What is the annual interest payment? b) What is the size of the annual payment into the sinking fund? c) What is the total annual cost of the debt? d) What is the book value of the debt after 6 years? e) Construct a partial sinking fund schedule showing details, including the book value of the debt, for the last three years and totals.

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Question 18

A sinking fund amounting to $115 000.00 is to be created by making payments at the beginning of every six months for 6 years. Interest earned by the fund is 6.5% compounded semi-annually. Determine the size of the semi-annual payments and prepare a sinking fund schedule showing totals.

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Question 19

A $25 000, 8% bond with semi-annual coupons, redeemable at par in 12 years, is purchased to yield 6% compounded semi-annually. Determine the gain or loss if the bond is sold two years later at

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Question 20

Showing 1 - 20 of 81

A $50 000, 6% bond with semi-annual coupons redeemable at par on April 25, 2018, was purchased on June 25, 2009, at 94.378. What was the approximate yield rate?

A $50 000 bond bearing interest at 6.5% bond payable semi-annually matures in 10 years. If it is bought to yield 5.7% compounded semi-annually, what is the purchase price of the bond?

A $1000, 6% bond redeemable at par with semi-annual coupons was purchased 10 years before maturity to yield 5% compounded semi-annually. The bond was sold 3 years later at 102. Calculate the gain or loss on the sale of the bond.

What is the purchase price of a bond that has 4 years and 6 months until it matures? The face value of the bond is $3000 and the coupon rate is 5.2% compounded semi-annually. The yield rate is 7.5% compounded semi-annually.

A 50 000 bond bearing interest at 5.5% payable semi-annually is redeemable at par on August 10, 2033. The bond is sold on the primary market on December 10, 2013, to yield 5% compounded semi-annually. Determine a) calculate the market price; b) the accrued interest; c) the cash price.

Bonds with a face value of $130 000 redeemable at par bearing 4.5% coupons payable quarterly are sold six years before maturity to yield 5.25% quarterly. Determine a) the premium or discount; b) the purchase price?

A $10 000.00, 5% bond with semi-annual coupons redeemable at 105 in 23 years is purchased at 102.5. What is the approximate yield rate?

A $100 000.00, 7% bond with semi-annual coupons redeemable at 105 on November 1, 2001, is purchased on July 23, 1999, to yield 8% compounded semi-annually. Determine the quoted price.

A $1000, 6.5% bond redeemable at par in four years bears coupons payable annually. Compute the premium or discount and the purchase price if the yield, compounded annually, is 7.5%.

A $40 000 bond with semi-annual coupon payments at 5.5% compounded semi-annually is redeemable at par in 12 years. Calculate the yield rate if the bond is purchased at 102.5.

A $100 000, 8% bond with semi-annual coupons redeemable at par on April 25, 2018, was purchased on June 25, 2009, at 94.125. What was the approximate yield rate?

A $10 000, 7.2% bond with semi-annual coupons is purchased 3 years before maturity. Calculate the discount or premium if the bond is sold to yield 6% compounded semi-annually.

A $5000.00 6.5% bond redeemable at 109 with interest payable annually is purchased six years before maturity to yield 7% compounded annually. Construct the appropriate bond schedule.

Find the gain or loss on the sale without constructing a bond schedule for a $100 000, 8% bond with semi-annual coupons redeemable at par purchased eleven-and-a-half years before maturity to yield 9% compounded semi-annually. The bond was sold five years later at 99.125.

Find the gain or loss on the sale without constructing a bond schedule for three $100 000, 5.5% bonds with quarterly coupons redeemable at par on September 1, 2017, bought on May 1, 2011, to yield 6% compounded quarterly. The bonds were sold on January 21, 2014, at 93.5.

A $100 000.00, 7.2% bond with quarterly coupons redeemable at par is purchased 11 years before maturity to yield 6% compounded semi-annually. Determine the premium or discount.

A sinking fund amounting to $115 000.00 is to be created by making payments at the beginning of every six months for 6 years. Interest earned by the fund is 6.5% compounded semi-annually. Determine the size of the semi-annual payments and prepare a sinking fund schedule showing totals.

A $25 000, 8% bond with semi-annual coupons, redeemable at par in 12 years, is purchased to yield 6% compounded semi-annually. Determine the gain or loss if the bond is sold two years later at

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