Redesigned Computers has 10 percent coupon bonds outstanding with a current market price of $898.06. The...

Redesigned Computers has 10 percent coupon bonds outstanding with a current market price of $898.06. The yield to maturity is 11.34 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures?rs at a 4.50 percent interest compounded monthly. What is the amount of each payment?

Expert Solution

Bond price is equal to:

where 50 is coupon payment (semi-annual)

t= time to maturity

Now, we have bond price with us i.e. 898.06

So, we have to calculate the value for 't'

Solving for t, we get answer as 36. Now divide this 36 by 2 so that we we will get number of years i.e. 18. We divided t=36 by 2 because we are getting semi-annual payment.

To verify, calculate the same on an excel sheet by putting in values:

Period	YTM	coupon	PVF	Present Value
1	5.67	50	0.946342387	47.31711933
2	5.67	50	0.895563913	44.77819564
3	5.67	50	0.847510091	42.37550453
4	5.67	50	0.802034722	40.1017361
5	5.67	50	0.758999453	37.94997265
6	5.67	50	0.718273354	35.91366769
7	5.67	50	0.67973252	33.986626
8	5.67	50	0.643259695	32.16298476
9	5.67	50	0.608743915	30.43719576
10	5.67	50	0.57608017	28.80400848
11	5.67	50	0.545169083	27.25845413
12	5.67	50	0.515916611	25.79583054
13	5.67	50	0.488233757	24.41168784
14	5.67	50	0.462036299	23.10181493
15	5.67	50	0.437244534	21.86222668
16	5.67	50	0.413783035	20.68915177
17	5.67	50	0.391580425	19.57902127
18	5.67	50	0.370569154	18.52845772
19	5.67	50	0.350685298	17.5342649
20	5.67	50	0.331868362	16.59341809
21	5.67	50	0.314061098	15.70305488
22	5.67	50	0.297209329	14.86046643
23	5.67	50	0.281261785	14.06308927
24	5.67	50	0.266169949	13.30849746
25	5.67	50	0.251887905	12.59439525
26	5.67	50	0.238372201	11.91861006
27	5.67	50	0.225581718	11.27908589
28	5.67	50	0.213477541	10.67387706
29	5.67	50	0.202022846	10.10114229
30	5.67	50	0.191182782	9.559139107
31	5.67	50	0.18092437	9.046218517
32	5.67	50	0.1712164	8.560820022
33	5.67	50	0.162029337	8.101466852
34	5.67	50	0.15333523	7.666761476
35	5.67	50	0.145107627	7.255381353
36	5.67	1050	0.137321498	144.187573
				898.0609178

jeff jeffy answered 6 months ago

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