# Question: the 7 percent bonds issued by modern kitchens pay interest...

###### Question details

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the yield to maturity for these bonds is 7.22%. What is the market price per bond?

**$986.81**

S.S. Corporation’s bonds will mature in 15 years. The bonds have a face value of $1,000 and

an 6.5 percent coupon rate, paid semiannually. The price of the bonds is $1,050. What is the yield to maturity?

**5.99%**

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the

bonds have a $1,000 par value, and the coupon interest rate is 5.5 percent. The bonds have a yield to maturity of 8 percent.

1). What is the current market price of these bonds?

**$869.84**

2). What is the current yield?

**6.32%**

3). What is the capital gains yield?

**1.68%**

4). These bonds sell at

a. par b. a premium c. a discount

**Discount.**

Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable

semiannually. The bonds mature in 6 years, have a face value of $1,000, and a yield to maturity of 8.5 percent.

1). What is the price of the bonds?

**$1,023.13**

2). What is the current yield?

**8.80%**

3). What is the capital gains yield?

**-0.30%**

4). These bonds sell at

a. par b. a premium c. a discount

**Premium.**

Getty Markets has bonds outstanding that have a real return of 3.08 percent. The current rate of inflation is 3.1 percent. What is the nominal rate of return on these bonds?

**6.28%**

Suppose the nominal rate you see on a Treasury bill is 4.31 percent and its real rate is 2.5 percent, what is the inflation rate?

**1.77%**

Problem set 2

Homework: 1, 3, 4, 6, 8, 9, 11, 12

Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You expect the stock to pay a dividend of $0.75 per share at the end of Year 1 and $1.75 per share at the end of Year 2. You believe you can sell the stock for $15.50 at the end of Year 2. What is the value per share of the company’s stock if the required rate of return is 12 percent?

**$14.42**

Investors expect Microtech to pay the first dividend of $1.25 at the end of Year 2. The dividend should grow at a rate of 8 percent per year during Years 3, 4, and 5. The stock can be sold for $42 at the end of Year 5. Determine the current market value of the company’s stock if the required rate of return is 12 percent.

**$27.61**

Diets For You announced today that it will begin paying annual dividends next year.

The first dividend will be $1.25 a share. The following dividends will be $0.25, $0.25,

$0.50, and $0.75 a share annually for the following 4 years, respectively. At the end of

the fifth year, the stock could be sold for $18. How much are you willing to pay to buy

one share of this stock today if your desired rate of return is 8.5 percent?

**$14.39**

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