The following questions are independent of each other.
A. Miller Brothers Ltd has bonds outstanding that matures in 7 years and pays a 6 percent semi-annual coupon.
(a) What will the bond price be for one of these bonds if the par value is $1,000 and the market interest rate is 8.0 percent?
(b) Calculate and explain what would happen to the value of the bond if the market interest rate falls to 6.0 percent.
B. Assume you will receive $2,000 a year in Years 1 through 5, $3,000 a year in years 6 through 8, and $4,000 in year 9 with all cash flows to be received at the end of the year. If you require a return of 14 percent annually, what is the present value of these cash flows?
C. Go-geta Corp. issued 10-year bonds 2 years ago at a coupon rate of 6 percent. The bonds make semiannual payments.
(a) If these bonds currently sell for 98 percent of par value, what is the YTM?
(b) List the key features of a bond.
(c) Explain what is meant by net proceeds in the context of a bond sale.