In: Finance
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%. |
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 |