You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature...

You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature on 15 February 2022 and have a coupon rate of 4.75%. If your purchase will settle on 27 April 2012, and the quoted yield for the bond is 3.92%, what is the cash price of the bonds to the nearest dollar?

Solutions

Expert Solution

Price of bond

Present value of all coupon payments at yeild+present value of redemption price at yeild

Yeild

3.92% or 0.0392

Redemption value=face value=$100,000

Coupon=$100,000*4.75%=$4750

calculation of Time to redemption

Period (in years) from 27th april 2012 to 15th feb 2013

294days/365 days a year

0.8055 year

period from 15 th feb 2013 to 15th feb 2022

9 years

Total time to redemption

9years+0.8055year

9.8055 years

Price of the bond

[coupon*PVAF(yeild,time)]+PVF(Yeild,time)*redemption value

[coupon*PVAF(3.92%,9.8055years)]+100,000*PVF(3.92%,9.8055yrs)

(4750*8.0129)+(100,000*0.6859)

38061+68590

$106,651

Cash price of bond is $106,651

Please upvote the answer

In case you have any doubt,please ask in the comments

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature...

You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature on 15 February 2027 and have a coupon rate of 4.75%. If your purchase will settle on 27 April 2012, and the quoted yield for the bond is 5.81%, what is the cash price of the bonds to the nearest dollar?

Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon...

Claire Corporation is planning to issue bonds with a face value of $100,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1,...

A company's bonds will mature in 20 years and have a face value of $1,000, a...

A company's bonds will mature in 20 years and have a face value of $1,000, a 6.25% coupon rate paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,090. What is their yield to maturity? What is their yield to call? What is the after-tax cost of debt on these bonds if they are not called and the tax rate is 25%?

Thatcher Corp. bonds will mature in 20 years and have a face value of $1,000, a...

Thatcher Corp. bonds will mature in 20 years and have a face value of $1,000, a 6.25% coupon rate paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,090. What is their yield to maturity? What is their yield to call? What is the after-tax cost of debt on these bonds if they are not called and the tax rate is 25%?

The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and...

The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 19.0 percent. Assume interest payments are made semiannually. a. Determine the present value of the bond’s cash flows if the required rate of return is 19.0 percent. (Round factor value calculations to 5 decimal places, e.g. 0.52755. Round other intermediate calculations to 2 decimal places, e.g. 52.75. Round final answer to nearest dollar amount.) !!!!!ANSWER IS $1,000!!!! b. How...

Bonds of RCY Corporation with a face value of $1000 sells for $960, mature in 5...

Bonds of RCY Corporation with a face value of $1000 sells for $960, mature in 5 years, and have a 7% coupon rate paid semiannually. Calculate the investor's RCY by assuming the following: - Bond sold to yield at 7% and the end of the 3-year holding period. - Reinvestment rate 6% APR during this holding period. - PS: state what assumption(s) you need to make in calculating this RCY.

CASIO Corp. issued P500,000 face value bonds on January 1, 20x8. The bonds, which will mature...

CASIO Corp. issued P500,000 face value bonds on January 1, 20x8. The bonds, which will mature on January 1, 20x11 pay interest of 12% every December 31. The bonds are issued to yield 10% interest. What is the carrying value of the bonds on December 31, 20x9?

On January 1, 2017, Hawkins Industries issues bonds that have a $100,000 par value, mature in...

On January 1, 2017, Hawkins Industries issues bonds that have a $100,000 par value, mature in 10 years, and pay 6% interest semiannually on June 30 and December 31. The bonds were issued at 95. Prepare the journal entry to record the issuance of the bonds on January 1, 2017 Prepare the journal entry to record the first interest payment on June 30, 2017, assuming that the bond discount or premium is amortized using the straight-line method. On January 1,...

PowerTap Utilities is planning to issue bonds with a face value of $1,500,000 and a coupon...

PowerTap Utilities is planning to issue bonds with a face value of $1,500,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. PowerTap uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate...

Claire Corporation is planning to issue bonds with a face value of $220,000 and a coupon...

Claire Corporation is planning to issue bonds with a face value of $220,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 16 percent. (FV of $1, PV of $1,...

Subjects