Principles of Managerial Finance, 14e, Global Edition (Gitman/Zutter)

Chapter 6 Interest Rates and Bond Valuation

10) The value of any asset is the ________.

A) sum of all future cash flows it is expected to provide over the relevant time period

B) sum of the present values of all future cash flows it is expected to provide over the relevant time period

C) present value of the sum of all future cash flows it is expected to provide over the relevant time period

D) sum of all compounded future cash flows it is expected to provide over the relevant time period

12) A record collector has agreed to sell her entire collection to a historical museum in three years at a price of $100,000. The current risk-free rate is 7 percent. At what price should she value her collection today?

14) What is the value of an asset which pays $200 a year for the next 5 years and can be sold for $1,500 at the end of five years from now? Assume that the opportunity cost is 10 percent.

15) A firm has an issue of $1,000 par value bonds with a 12 percent stated interest rate outstanding. The issue pays interest annually and has 10 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent, the firm's bond will sell for ________ today.

A) $1,000

B) $805.20

C) $1,115.50

D) $1,268.40

20) Jia Hua Enterprises wants to issue sixty 20-year, $1,000 par value, zero-coupon bonds. If each bond is priced to yield 7 percent, how much will Jia Hua receive (ignoring issuance costs) when the bonds are first sold?

A) $11,212

B) $12,393

C) $15,505

D) $18,88021) Zheng Corporation plans to issue new bonds to finance its expansion plans. In its efforts to price the issue, Zheng Corporation has identified a company of similar risk with an outstanding bond issue that has an 8 percent coupon rate having a maturity of ten years. This firm's bonds are currently selling for $1,091.96. If interest is paid annually for both bonds, what must the coupon rate of the new bonds be in order for the issue to sell at par?

A) 5.78%

B) 6.88%

C) 6.50%

D) 6.71%

Table 6.2

34) (a)Calculate the current value of Bond L. (See Table 6.2)

(b)What will happen to the value/price as the bond approaches maturity?

35) Calculate the current value of Bond M. (See Table 6.2)

36) Calculate the current value of Bond M if the time of maturity is six years. (See Table 6.2)

37) (a)Calculate the current value of Bond N. (See Table 6.2)

(b)What will happen to value/price as the bond approaches maturity?

41) Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi-annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest?

9) What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

A) 8.5 percent

B) 9.3 percent

C) 12.0 percent

D) 13.2 percent

13) Nico Corp issued bonds bearing a coupon rate of 12 percent, pay coupons semiannually, have 3 years remaining to maturity, and are currently priced at $940 per bond. What is the yield to maturity?

A) 12.00%

B) 13.99%

C) 14.54%

D) 15.25%

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