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Master painter bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of...

Master painter bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The required rate of return is 6.2%. Based on semiannual compounding, what is the market price of a bond and the current yield of a bond (percentage)?

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Expert Solution

Price of Bond = PV of CFs from it.

Period Cash Flow PVF @3.1 % Disc CF
1 $        36.25     0.9699 $         35.16
2 $        36.25     0.9408 $         34.10
3 $        36.25     0.9125 $         33.08
4 $        36.25     0.8850 $         32.08
5 $        36.25     0.8584 $         31.12
6 $        36.25     0.8326 $         30.18
7 $        36.25     0.8076 $         29.28
8 $        36.25     0.7833 $         28.39
9 $        36.25     0.7598 $         27.54
10 $        36.25     0.7369 $         26.71
11 $        36.25     0.7148 $         25.91
12 $        36.25     0.6933 $         25.13
13 $        36.25     0.6724 $         24.38
14 $        36.25     0.6522 $         23.64
15 $        36.25     0.6326 $         22.93
16 $        36.25     0.6136 $         22.24
17 $        36.25     0.5951 $         21.57
18 $        36.25     0.5772 $         20.92
19 $        36.25     0.5599 $         20.30
20 $        36.25     0.5430 $         19.68
21 $        36.25     0.5267 $         19.09
22 $        36.25     0.5109 $         18.52
23 $        36.25     0.4955 $         17.96
24 $        36.25     0.4806 $         17.42
25 $        36.25     0.4662 $         16.90
26 $        36.25     0.4521 $         16.39
27 $        36.25     0.4385 $         15.90
28 $        36.25     0.4254 $         15.42
29 $        36.25     0.4126 $         14.96
30 $        36.25     0.4002 $         14.51
30 $   1,000.00     0.4002 $      400.17
Price of Bond $   1,101.58

Current Yield = Coupon in Year1 / Price Today

= $ 72.50 / $ 1101.58

= 0.0658 i.e 6.58%

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 2 years ago
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