Question

In: Finance

Watson consulting, llc is a consultancy to consultants. They have bonds which have a face value...

Watson consulting, llc is a consultancy to consultants. They have bonds which have a face value of $1,000. The bonds carry a 3.5 percent semi-annual coupon, and mature in 10 years. What is the current price of these bonds if the yield to maturity (the going market rate, rd) is 5 percent? $883.08 $813.06 $884.17 $749.04 $594.98

Solutions

Expert Solution

Current Price of the Bond

The Current Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows

Variables

Financial Calculator Keys

Figures

Face Value [-$1,000]

FV

-1,000

Coupon Amount [$1,000 x 3.50% x ½]

PMT

17.50

Market Interest Rate or Required Rate of Return [5.00% x ½]

1/Y

2.50

Time to Maturity [10 Years x 2]

N

20

Bond Price

PV

?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $883.08.

“Hence, the Current Price of the Bond will be $883.08”

jeff jeffy answered 8 months ago
Next > < Previous

Related Solutions

Which of the following is true of bonds? a Since bonds have a face value of...
Which of the following is true of bonds? a Since bonds have a face value of $1,000, they can be purchased at any time for $1,000. b Once purchased, bonds cannot be sold and must be held until maturity. c Investors in bonds are part owners of the corporation that issued the bonds. d For the corporation that issues bonds, bonds are a way to fund its assets.
RKO Company sold bonds with a face value of $750,000 for $806,000. The bonds have a...
RKO Company sold bonds with a face value of $750,000 for $806,000. The bonds have a coupon rate of 7 percent, mature in 10 years, and pay interest annually every December 31. All of the bonds were sold on January 1 of this year. Record the sale of the bonds on January 1 and the payment of interest on December 31 of this year, without the use of a premium account. RKO uses the effective-interest amortization method. Assume an annual...
a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value...
a. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield? b. Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such...
a.Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of...
a.Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield? b.Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such as these...
Bonds: The company issued 80,000 bonds. The bonds have a $1,000 face value with 7.5% coupons...
Bonds: The company issued 80,000 bonds. The bonds have a $1,000 face value with 7.5% coupons with annual payments, 7 years to maturity, and currently sell for $925. The marginal tax rate is 12%. Common Stock: The company has 500,000 shares of common stock outstanding, selling for $41 per share. The company’s beta is 1.25, the risk free rate is 2%, and the market risk premium is 9%. Preferred Stock: The company issued 100,000 shares of preferred stock. Preferred stock...
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,146.32, and currently sell at a price of $1,269.54. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.
A firm's bonds have a maturity of 10 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,057.09, and currently sell at a price of $1,108.89. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM:   % YTC:   % What return should investors expect to earn on these bonds? Investors would not expect the bonds to be called...
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,200, and currently sell at a price of $1,348.76. What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % What return should investors expect to...
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,062.23, and currently, sell at a price of $1,117.10. 1. What is their nominal yield to maturity? 2. What is their nominal yield to call?
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,075.62, and currently sell at a price of $1,139.11. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM:   % YTC:   % What return should investors expect to earn on these bonds? Investors would expect the bonds to be called and...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT