1. Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...

1. Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11%. The bonds have a yield to maturity of 12%. What is the current market price of these bonds? Round your answer to the nearest cent.

2. Wilson Wonders' bonds have 15 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 12%. The bonds sell at a price of $1,100. What is their yield to maturity? Round your answer to two decimal places.

Solutions

Expert Solution

Solution to QUESTION-1

Current Market Price of the Bond

The 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 11%]	PMT	110
Market Interest Rate or Required Rate of Return [12%]	1/Y	12
Time to Maturity [5 Years]	N	5
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 = $963.95.

“Hence, the Current Market Price of the Bond will be $963.95”

Solution to QUESTION-2

Yield to Maturity [YTM] of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)


Variables	Financial Calculator Keys	Figure

Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 12%]	PMT	120
Market Interest Rate or Required Rate of Return	1/Y	?
Time to Maturity [15 Years]	N	15
Bond Price [-$1,100]	PV	-1,100

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond = 10.64%.

“Therefore, the Yield to Maturity [YTM] of the Bond will be 10.64%”

jeff jeffy answered 2 months ago

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