TUTORIAL 5
QUESTIONS
Chapter 9: DEBT VALUATION
9-4 Calculate the market value of a bond that matures in eight years and has a €1,000 face value.
The annual coupon interest rate is 4 percent, and the market’s required yield to maturity on a
comparable-risk bond is 6 percent.
9–6. Rayyan Industries is considering issuing bonds that will mature in 10 years with a 6 percent
annual coupon rate. Their face value will be €500, and the interest will be paid semi-annually.
Rayyan has applied for its credit rating and is hoping to get an AA rating on its bonds. If it does, the
yield to maturity on similar AA bonds is 8 percent. However, if the bonds receive only an A rating,
the yield to maturity on similar A bonds is 11 percent. What will be the price of these bonds if they
receive either an A or an AA rating?
9–11. Five years ago XYZ International issued some 30-year zero-coupon bonds that were priced
with a market’s required yield to maturity of 8 percent.
What did these bonds sell for when they were issued?
Now that five years have passed and the market’s required yield to maturity on these bonds has
climbed to 10 percent, what are they selling for?
If the market’s required yield to maturity had fallen to 6 percent, what would they have been selling
for?
9–17. The 15-year, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The
market price of the bond is $1,085, and the market’s required yield to maturity on a comparable-risk
bond is 10 percent.
a. Compute the bond’s yield to maturity.
b. Determine the value of the bond to you, given the market’s required yield to maturity on a
comparable-risk bond.
c. Should you purchase the bond?
