Finance3400

Problem Set 5

1. You read an article that the railroad company CSX is issuing new debt with a rating of BBB. Each bond has a term
of 7 years with a $1000 face value and pays a 10% yearly coupon payment. Assuming the market yield for similar
term BBB rated corporate credit is 14%, what price would you pay for one the CSX bonds?

CouponRate 10% _______________________________

MarketYield 14%
Face Value $1000
N I PV PMT FV
7 14 1000

2. You call your broker and say “Hey, I’d like to buy 10 of the new CSX bonds today.” Your broker says, “Ok I can
sell you 10 bonds for $9000.” What do you tell your broker?

3. Assume you are buying a 10 year, $1000 par value bond, with a 9% annual coupon and a AA rating and a 7%
yield. How much is the bond selling for?

4. How much would a 10 year, zero coupon bond, with an 8% yield sell for?

5. You work in the finance department at Everglades National Park. The park has decided to build a new research
facility and borrow the money from investors to finance the construction of the facility. The facility costs
$8,000,000. The park can issue bonds with a face value of $10,000,000. The bonds would be rated AA and yield
8% with a 5 year term. It is up to you to pick the coupon rate that best fits your needs. What are some ways you
can structure the bond