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

jeff jeffy answered 1 year ago

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