Complete the missing information in the table below. Assume that all bonds pay i

Question

Complete the missing information in the table below. Assume that all bonds pay interest semiannually.

Do not use negative signs with answer.
Round percentages to one decimal place (ex. 0.0345 = 3.5%).
Round all other values to the nearest whole number.

Annual Years to Coupon Issue Yield Maturity Rate Face value Proceeds Firm 1 8.00% 15 7.00% $400,000 $Answer Firm 2 3.00% 10 0.00% $Answer $631,100 Firm 3 6.50% Answer 5.00% $500,000 $463,223 Firm 4 Answer % 12 3.50% $1,000,000 $1,136,452 Firm 5 0.80% 20 2.00% $600,000 $Answer

Explanation / Answer

Firm 1 : Calculation of issue proceeds: Interest (400000*0.07/2) 14000 Face value $400000 Yield to maturity(8/2) 4.00% Years to maturity(15*2) 30 Yield to maturity= Interest+ (Face value-Issue proceeds)/years to maturity       (face value + Issue proceeds)/2 0.04= 14000+(400000-Issue proceeds)/30 (400000+Issue proceeds)/2 8000+0.02*Issue proceeds= 14000+(400000-Issue proceeds)/30 Multiply both sides by 30 240000+0.6*Issue proceeds= 420000+400000-Issue proceeds 1.6* Issue proceeds= 580000 Issue proceeds= $362500 Issue proceeds is $362500 Firm 2 : Calculation of face value: Interest 0 Issue proceeds $631100 Yield to maturity(3/2) 1.50% Years to maturity(10*2) 20 Yield to maturity= Interest+ (Face value-Issue proceeds)/years to maturity       (face value + Issue proceeds)/2 0.015= 0+(Face value-631100)/20 (Face value+631100)/2 0.0075*Face value+ 4733.25= (Face value-631100)/20 Multiply both sides by 20 0.15*Face value+94665= Face value- 631100 0.85*Face value= 725765 Face value=$853840 Firm 3 : Calculation of years to maturity: Interest (500000*0.05/2) 12500 Issue proceeds $463233 Yield to maturity(6.5/2) 3.25% Face value $500000 Yield to maturity= Interest+ (Face value-Issue proceeds)/years to maturity       (face value + Issue proceeds)/2 0.0325= 12500+(500000-463233)/years to maturity (500000+463233)/2 0.0325= 12500+36767/years to maturity 481616.5 15652.536=12500+36767/years to maturity 3152.536=36767/years to maturity Years to maturity= 12 Firm4:Calculation of Yield: Interest (1000000*0.035/2) 17500 Face value $1000000 Issue proceeds $1136452 Years to maturity(12*2) 24 Yield= Interest+ (Face value-Issue proceeds)/years to maturity       (face value + Issue proceeds)/2 17500+(1000000-1136452)/24 (1000000+1136452)/2 Yield to maturity( half year)=1.1% Yield to maturity( full year)=2.2% Firm 5 : Calculation of issue proceeds: Interest (600000*0.02/2) 6000 Face value $600000 Yield to maturity(0.008/2) 0.40% Years to maturity(20*2) 40 Yield to maturity= Interest+ (Face value-Issue proceeds)/years to maturity       (face value + Issue proceeds)/2 0.004= 6000+(600000-Issue proceeds)/40 (600000+Issue proceeds)/2 1200+0.002*Issue proceeds= 6000+(600000-Issue proceeds)/40 Multiply both sides by 40 48000+0.08*Issue proceeds= 240000+600000-Issue proceeds 1.08* Issue proceeds= 792000 Issue proceeds= $733333 Issue proceeds is $733333

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