Question

1. As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, will mature in eight years, and have a coupon rate of 9.5% on a face value of $1,000. Currently, the bonds are selling for $872. If you required return is 11% for bonds in this risk class, what is the highest price you would be willing to pay? b. What is the yield to maturity on these bonds if you purchase them at the current price? c. If the bonds can be called in three years with a call premium of 4% of the face value, what is the yield to call on these bonds?

1. If you required return is 11% for bonds in this risk class, what is the highest price you would be willing to pay?
2. What is the yield to maturity on these bonds if you purchase them at the current price?
3. If the bonds can be called in three years with a call premium of 4% of the face value, what is the yield to call on these bonds?

BY USING EXCEL

Answer 1

given maturity= 8 years , interest semiannually

n=8*2=16 interest rate= 9.5/2=4.75, face value 1000,

interest=1000*4.75%=47.5

cost of capital =11/2=5.5

a)

we know that intrisic price of the bond= INTEREST*PVAF(YIELD %, N YEARS)+MATURITY VALUE*PVF(YIELD %, N YEARS)

=47.5*PVAF(5.5%,16)+1000*PVF(5.5,16)

=47.5*10.4622+1000*0.4246

=921.55

the maximum price the investor can pay 921.55

B) given current market price =872, interest from above 47.5, maturity value 1000, n=16

ytm=5.93% semiannually , annuall=5.93*2=11.86%

c)yield to call

	face value	1000
	cuopon rate	9.75%
	Required rate	11.00%
	years to maurity	8
	years to call	3
	PREMIUM	4%
	payment frequency	2
	cmp	872
	ytc	16.41%
	formula
	RATE(B6*B8,B3/B8*B2,-B10,B2*(1+B7))*B8