An XYZ April 2021 bond with a 9.03 percent coupon interest rate and par value of...

An XYZ April 2021 bond with a 9.03 percent coupon interest rate and par value of $1,000 recently had a price of 94.199.

Calculate the following:

a. When will the bond mature?

b. How much would you have to pay to purchase this bond?

c. If you owned the bond, how much would someone have to pay to but it from you?

d. What is the current yield, assuming a closing price of 93.99?

Solutions

Expert Solution

a. The bond will mature on April,2021

The bond details can be derived from the nomencluate of the same.Here, the bond is traded with name XYZ April 2021.Thus, the bond will mature on April 2021.

b. I will have to pay $ 94.199.Bonds are traded at the market price which in the question is 94.199.Also,Par value or the face value of the bond is the amount owed to the bondholder at the maturity by the bond issuer.

c. As discussed above, buying and selling of the bond takes place at the market price of the bond, which in the question is $ 94.199.Therefore, if anyone wants to buy the bond from me, will have to pay $94.199

d. The current yield is 6.0741 %

Working:

Current yield can be calculated using the formula,

Current yield = Coupon Amount / Closing price of the bond.

Now,

Coupon Amount = Coupon intrest rate X Par value

Subsituting the values from the question

=> Coupon Amount = 9.03 % X $1,000 = $ 90.30

Therefore, Current Yiled = $ 90.30 / $ 93.99 = 0.96074 OR 96.0741 %

jeff jeffy answered 1 year ago

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