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) 6.200 Jan 15, 2028 94.263 ?? 57,370 Kenny Corp. (KCC) 7.200 Jan 15, 2027 ?? 5.30 48,949 Williams Co. (WICO) ?? Jan 15, 2034 94.815 7.00 43,810 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 %

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
Par Value/Face Value of the Bond [$2,000]	FV	2,000
Coupon Amount [$2,000 x 7.20% x ½]	PMT	72
Market Interest Rate or Yield to maturity on the Bond [5.30% x ½]	1/Y	2.65
Maturity Period/Time to Maturity [(Jan 15, 2016 to Jan 15, 2027) x 2]	N	22
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 (PV) = $2,313.70.

“Amount expect to pay for the Kenny Corp. bond will be $2,313.70”

(2)-Bond’s Current Yield

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

= [($2,000 x 7.20%) / $2,313.70] x 100

= [$144 / $2,313.70] x 100

= 6.22%

“Hence, the Bond’s Current Yield will be 6.22%”