Question

1- Calculate the yield to maturity on the following bonds:

A- A 8.6 percent coupon (paid semiannually) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915.

B- An 5.7 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $911.

C- An 7.7 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,061.

  
(For all requirements, do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))

a.	Yield to maturity		% per year
b.	Yield to maturity		% per year
c.	Yield to maturity

2- Financial analysts forecast L Brands (LB) growth for the future to be 12.4 percent. LB's most recent dividend was $1.70. What is the fair present value of L Brands’s stock if the required rate of return is 15.8 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

	Fair present value

Answer 1

1.

a.	Yield to maturity	9.962%	Per year
b.	Yield to maturity	6.942%	Per year
c.	Yield to maturity	6.691%	Per year

Working:

Using financial calculator BA II Plus - Input details:	a.	b.	c.
FV = Future Value =	-$1,000.00	-$1,000.00	-$1,000.00
PV = Present Value =	$915.00	$911	$1,061
N = Total number of periods = Years x frequency =	20	40	8
PMT = Payment = Coupon / frequency =	-$43.00	-$14.25	-$77.00
CPT > I/Y = Rate or YTM =	4.9810	1.7354	6.6907
Convert Yield in annual and percentage form = Yield*Frequency / 100 =	9.962%	6.942%	6.691%

2.

Fair present value = Dividend x (1+Growth rate)/(Required rate - growth rate)

Fair present value = 1.7 x (1+12.4%)/(15.8% - 12.4%)

Fair present value = $56.20