Question

In: Finance

1. Assume Apple issued bonds with a 20 year maturity at a coupon rate of 8.4...

1. Assume Apple issued bonds with a 20 year maturity at a coupon rate of 8.4 percent. The bonds make semiannual payments, and the YTM on these bonds is 7.5 percent.

What is the semiannual coupon payment?

A.$37.50

B.$42

C.$84

D.$75

2. Is the bond trading at par, discount, or premium?

A.Par

B. Discount

C.Premium

D.All the above

3. What is the yield that should be used to calculate the bond price?

A. 7.5%

B.4.35%

C. 8.4%

D.4.8%

4. What is the face value of this bond?

A. $1000

B.$10000

C.$500

D. $100

5. What is the price of the bond?

A.$1,092

B.$1,000

C.$633.80

D.$913.52

Solutions

Expert Solution

Answer 1.

Face Value = $1,000

Annual Coupon Rate = 8.40%
Semiannual Coupon Rate = 4.20%
Semiannual Coupon = 4.20% * $1,000
Semiannual Coupon = $42

Answer 2.

Bond is trading at premium as YTM is less than coupon rate.

Answer 3.

Yield of 7.50% should be used to calculate the bond price.

Answer 4.

Face value of this bond is $1,000

Answer 5.

Annual YTM = 7.50%
Semiannual YTM = 3.75%

Price of Bond = $42 * PVIFA(3.75%, 40) + $1,000 * PVIF(3.75%, 40)
Price of Bond = $42 * (1 - (1/1.0375)^40) / 0.0375 + $1,000 * (1/1.0375)^40
Price of Bond = $42 * 20.55099 + $1,000 * 0.22934
Price of Bond = $1,092

jeff jeffy answered 2 years ago

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