Question

1. ABC Corporation issues a bond which has a coupon rate of 9.40%, a yield to maturity of 7.75%, a face value of $1,000, and a market price of $990. What is the semiannual interest payment? Round to two decimal places.
   1. Describe and interpret the assumptions related to the problem.
   2. Apply the appropriate mathematical model to solve the problem.
   3. Calculate the correct solution to the problem.

2. ABC company sold an issue of 14-year $1,000 par bonds to build new ships. The bonds pay 10% interest, compounded semiannually. Today's required rate of return is 8.50%. How much should these bonds sell for today? Round to two decimal places.
   1. Describe and interpret the assumptions related to the problem.
   2. Apply the appropriate mathematical model to solve the problem.
   3. Calculate the correct solution to the problem.

3. Assume ABC company has an issue of 30-year $1,000 par value bonds that pay 4.75% interest, compounded annually. Further assume that today's required rate of return on these bonds is 25%. How much would these bonds sell for today? Round to two decimal places.
   1. Describe and interpret the assumptions related to the problem.
   2. Apply the appropriate mathematical model to solve the problem.
   3. Calculate the correct solution to the problem.

4. ABC Company issued bonds on January 1, 2006. The bonds had a coupon rate of 6.0%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 202 What is the yield to maturity for these bonds on January 1, 2019 if the market price of the bond on that date is $1,150? Submit your answer as a percentage and round to two decimal places.
   1. Describe and interpret the assumptions related to the problem.
   2. Apply the appropriate mathematical model to solve the problem.
   3. Calculate the correct solution to the problem.

Answer 1

Solution:
1) Given:
Coupon rate	9.40%
YTM i.e RATE	7.75%
Face value i.e FV	$1000
Market price i.e PV	$990
Semiannual interest payment:
Semiannual interest payment = Face value *Coupon rate
$1000*9.40%*6/12
47.00
Semiannual interest Amount = $47.00
2) Given:
Term i.e NPER	14 Year i.e 28 Semiannual Periods = 14*2
Face value i.e FV	$1000
Coupon payment	10% i.e 5% Semiannual rate 10%/2
Required rate of Return i.e RATE	8.5% i.e 4.25% Semiannual rate
Coupon amount i.e PMT	$1000* 5% i.e $50
Selling price today i.e PV
Using the PV Function in excel we will calculate the price at which the bond can be sold today:
PV(4.25%,28,$50,$1000,0)
1121.44780543188
The bond should sell for $1121.45
3)
2) Given:
Term i.e NPER	30 Year
Face value i.e FV	$1000
Coupon payment	4.75%
Required rate of Return i.e RATE	25.00%
Coupon amount i.e PMT	$1000* 4.75% i.e $47.5
Selling price today i.e PV
Using the PV Function in excel we will calculate the price at which the bond can be sold today:
PV(25%,30,$47.5,$1000,0)
191.002731431821
The bond should sell for $191.00