Question

In: Finance

KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon...

KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon paid semi-annually. Calculate its price for each of the following three YTM scenarios: 4.0%, 6.0%, and 8.0%.

Solutions

Expert Solution

Face Value = $1,000

Annual Coupon Rate = 6.50%
Semiannual Coupon Rate = 3.25%
Semiannual Coupon = 3.25% * $1,000
Semiannual Coupon = $32.50

Time to Maturity = 100 years
Semiannual Period = 200

If YTM is 4.00%:

Annual YTM = 4.00%
Semiannual YTM = 2.00%

Current Price = $32.50 * PVIFA(2.00%, 200) + $1,000 * PVIF(2.00%, 200)
Current Price = $32.50 * (1 - (1/1.02)^200) / 0.02 + $1,000 / 1.02^200
Current Price = $32.50 * 49.04734 + $1,000 * 0.01905
Current Price = $1,613.09

If YTM is 6.00%:

Annual YTM = 6.00%
Semiannual YTM = 3.00%

Current Price = $32.50 * PVIFA(3.00%, 200) + $1,000 * PVIF(3.00%, 200)
Current Price = $32.50 * (1 - (1/1.03)^200) / 0.03 + $1,000 / 1.03^200
Current Price = $32.50 * 33.24309 + $1,000 * 0.00271
Current Price = $1,083.11

If YTM is 8.00%:

Annual YTM = 8.00%
Semiannual YTM = 4.00%

Current Price = $32.50 * PVIFA(4.00%, 200) + $1,000 * PVIF(4.00%, 200)
Current Price = $32.50 * (1 - (1/1.04)^200) / 0.04 + $1,000 / 1.04^200
Current Price = $32.50 * 24.99020 + $1,000 * 0.00039
Current Price = $812.57

jeff jeffy answered 4 months ago
Next > < Previous

Related Solutions

KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon...
KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon paid semi-annually. Calculate its price for each of the following three YTM scenarios: 4.0%, 6.0%, and 8.0%. Input: Output: Par ($)        1,000.00 Years to maturity                100 Annual coupon rate 6.50% Coupons per year                    2 Price Yield to maturity 4.0% Yield to maturity 6.0% Yield to maturity 8.0% KFA is evaluating a project with the following cash flows in the first 4...
AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond...
AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 8 years from now? Group of answer choices $901.78 $842.91 $892.55 $934.46 $953.25
. A 20-year, $1,000 par value bond has a 7% annual payment coupon. The bond currently...
. A 20-year, $1,000 par value bond has a 7% annual payment coupon. The bond currently sells for $780. If the yield to maturity remains at the current rate, what will the price be 10 years from now?
A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for...
A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $1,175. If the yield to maturity remains at its current rate, what will the price be 5 years from now? Select the correct answer. a. $1,159.09 b. $1,165.29 c. $1,168.39 d. $1,162.19 e. $1,155.99
A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for...
A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875. If the yield to maturity remains at its current rate, what will the price be 10 years from now?
Bond Returns: A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond...
Bond Returns: A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. After one year, assuming the the yield to maturity (discount rate) remains the same as previous, calculate the following returns between the two years: 1) Current yield 2) Capital gains yield 3) Total returns Hint: solve the rate (yield to maturity) for the 25-year bond. with the same yield to maturity, solve the price for the bond with shorter maturity....
A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon...
A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon payments made on July 1 and January 1. If the bond changes hands on November 1, which of the following is true with respect to accrued interest? The buyer will pay the seller $20 of accrued interest The seller will pay the buyer $20 of accrued interest The buyer will pay the seller $10 of accrued interest The seller will pay the buyer $10...
"Company A has just issued a callable (at par) 8 year, 12% coupon bond with annual...
"Company A has just issued a callable (at par) 8 year, 12% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a price of $107 per $100 face value. What is the bond's yield to call?
h&M has just issued a callable (at par) 9 year, 9% coupon bond with annual coupon...
h&M has just issued a callable (at par) 9 year, 9% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a price of $96 per $100 face value. What is the bond's yield to call? Apple has just issued a callable (at par) 9 year, 15% coupon bond with annual coupon payments. The bond can be called at par in one year or...
21. If a 3-year, semi-annual bond ($1,000 par value) has an annual coupon rate of 8...
21. If a 3-year, semi-annual bond ($1,000 par value) has an annual coupon rate of 8 percent, and an annual yield to maturity of 6 percent, then calculate Macaulay's duration of the bond using the table format demonstrated in the video (not the equation)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT