Question

In: Finance

XYZ Corp.’s outstanding bonds have a $5,000 par value and they mature in 5 years. Their...

XYZ Corp.’s outstanding bonds have a $5,000 par value and they mature in 5 years. Their yield-to-maturity is 8%, annual coupon rate is 6%, and semi-annual compounding.

(a) What's the bond's current market price?
(b) What is the bond’s current yield?
(c) If the Yield-to-maturity is 4%, what's the bond's current market price?

please write the answer and how you worked it out on here instead of paper

(d) If the Yield-to-maturity is 4%, what is the bond’s current yield?

Expert Solution

a.Information provided:

Par value= future value= $5,000

Time= 5 years*2= 10 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*5,000= $150 per semi-annual period

Yield to maturity= 8%/2= 4% per semi-annual period

The price of the bond is calculated by computing the present value of the bond.

Enter the below in a financial calculator to compute the present value:

FV= 5,000

PMT= 150

N= 10

I/Y= 4

Press the CPT key and PV to calculate the present value of the bond.

The value obtained is 4,594.46.

Therefore, the price of the bond is $4,594.46.

b.Current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

= $150 / $4,594.46

= 0.0326*100

= 3.26%.

c..Information provided:

Par value= future value= $5,000

Time= 5 years*2= 10 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*5,000= $150 per semi-annual period

Yield to maturity= 4%/2= 2% per semi-annual period

The price of the bond is calculated by computing the present value of the bond.

Enter the below in a financial calculator to compute the present value:

FV= 5,000

PMT= 150

N= 10

I/Y= 2

Press the CPT key and PV to calculate the present value of the bond.

The value obtained is 5,449.13.

Therefore, the price of the bond is $5,449.13.

d.Current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

= $150 / $5,449.13

= 0.0275*100

= 2.75%.

jeff jeffy answered 2 years ago

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