Question
In: Finance
Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13...
| Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. | |||||||||||||||
| Calculate: | |||||||||||||||
| a) Coupon rate | |||||||||||||||
| b) Current yield | |||||||||||||||
| c) The yield to maturity | |||||||||||||||
| d) The market price of the bond if the market rates for bonds of equal risk changed to 5%. | |||||||||||||||
Solutions
Expert Solution
|
Using financial calculator BA II Plus - Input details: |
# |
|
FV = Future Value = |
$1,000.00 |
|
PV = Present Value = |
-$975.00 |
|
N = Total number of periods = Years x frequency of coupon = |
26 |
|
PMT = Payment = Coupon / frequency of coupon = |
$31.00 |
|
CPT > I/Y = Rate or YTM Semiannual = |
3.2438 |
a. Coupon rate = PMT x 2 / FV = 31 x 2 / 1000 = 6.20%
b. Current Yield = PMT x 2 / PV = 31 x 2 / 975 = 6.36%
c. Convert Yield in annual and percentage form = YTM = Yield / 100*2 = 6.49%
d. New Market Price of the bond = $1,113.70 (working below)
|
Using financial calculator BA II Plus - Input details: |
# |
|
I/Y = Rate or yield / 2 = |
2.50 |
|
PMT = Payment /2 = |
-$31.00 |
|
N = Total number of remaining periods = |
26 |
|
FV = Future Value = |
-$1,000.00 |
|
CPT > PV = Bond Value = |
$1,113.70 |
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