Question

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000.

Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	EST $ Vol (000’s)
Xenon, Inc. (XIC)	6.600	Jan 15, 2032	94.303	??	57,374
Kenny Corp. (KCC)	7.240	Jan 15, 2031	??	5.38	48,953
Williams Co. (WICO)	??	Jan 15, 2038	94.855	7.08	43,814

What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price            $

What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield       6.09      %

Answer 1

(1)-Amount expect to pay for the Kenny Corp. bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Face Value [-$2,000]	FV	-2,000
Coupon Amount [$2,000 x 7.24% x ½]	PMT	72.40
Market Interest Rate or Required Rate of Return [5.38% x ½]	1/Y	2.69
Time to Maturity [(Jan. 15, 2016 to Jan. 15, 2031) x 2]	N	30
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $2,379.62.

“Amount expect to pay for the Kenny Corp. bond will be $2,379.62”

(2)-Bond’s Current Yield

Bond’s Current Yield = [Annual Coupon Amount / Bond’s Price] x 100

= [($2,000 x 7.24%) / $2,379.62] x 100

= [$144.80 / $2,379.62] x 100

= 6.09%.

“Hence, the Bond’s Current Yield will be 6.09%”