Question 1. Mega Industries Corporation has eighteen years of a bond outstanding to maturity, an 8.25% nominal coupon, with semiannual payments. The bond has a 6.5% nominal yield to maturity, and can be called at a price of $1,120.
a. What is the bond's nominal yield to maturity when called?
b. What is the bond's effective yield? If inflation rate is at 2.95% what is the real rate of return?
Question 2. Copper Corporation's Class Semi bonds have a 12 year maturity and an 8.75% coupon paid semiannually and those bonds sell at their par value. The firm's Class A bonds have the same risk, maturity, nominal interest rate, and par value but these bonds pay interest annually. Neither bond is callable.
a. At what price should the bond sell for?
b. Does this bond sell at a discount or premium and why?
Question 3. Flagship Corp. is looking to raise capital by issuing some 26 year bonds. The yield on the bonds is 7.34 percent. The bonds sell 96.75 percent of par value.
a. What is the current yield on these bonds?
b. What is the effective yield on these bonds?
c. What is the yield to maturity? What type of bond is this, discount or premium?