Question

In: Finance

11) Thirteen years ago a firm issued​ $1,000 par value bonds with a​ 5% annual coupon...

11) Thirteen years ago a firm issued​ $1,000 par value bonds with a​ 5% annual coupon rate and a term to maturity of 20 years. Market interest rates have decreased since then and similar bonds today would carry an annual coupon rate of​ 4%. What would these bonds sell for today if they made​ (a) annual coupon​ payments; and​ (b) semiannual coupon​ payments?

If the annual coupon bond in​ #8 above is selling for​ $1,150, according to the approximate YTM​ formula, what is its annual​ YTM?

12) How does the precise YTM compare to the approximate YTM in​ #11?

A.

There is insufficient information to answer this question.

B.

It is equal to the approximate YTM.

C.

It is below the approximate YTM.

D.

It is above the approximate YTM.

Solutions

Expert Solution

11.

bond issued 13 year ago and original maturity was 20 year. So from now, number of year remains in maturity is 7 year.

If current Market rate is 4% then price of bond in case of annual coupon payment is calculated in excel and screen shot provided below:

If current Market rate is 4% then price of bond in case of annual coupon payment is $1,060.02.

If current Market rate is 4% then price of bond in case of Semiannual coupon payment is calculated in excel and screen shot provided below:

If current Market rate is 4% then price of bond in case of semiannual coupon payment is $1,060.53.

Question 12 is based on question 8, so please attache question 8 and upload again.

jeff jeffy answered 1 year ago
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