Question
In: Finance
1. Bond A has the following features: Face value = $1,000, Coupon Rate = 5%, ...
1.
Bond A has the following features:
Face value = $1,000,
Coupon Rate = 5%,
Maturity = 5 years, Yearly coupons
The market interest rate is 6.37%
What is the current yield for bond A from today to year 1?
Calculate your answer to 2 decimal places (e.g., 5.23)
2.
Bond A has the following features:
Face value = $1,000,
Coupon Rate = 5%,
Maturity = 5 years, Yearly coupons
The market interest rate is 6.37%
What is the current yield for bond A from today to year 1?
Calculate your answer to 2 decimal places (e.g., 5.23)
3.
Bond A has the following features:
Face value = $1,000,
Coupon Rate = 4%,
Maturity = 4 years, Yearly coupons
The market interest rate is 3.44%
What is today’s price of bond A?
Solutions
Expert Solution
1 & 2.Information provided:
Face value= future value= $1,000
Time= 5 years
Coupon rate= 5%
Coupon payment= 0.05*1,000= $50
Yield to maturity= 6.37%
The question is solved by first calculating the current price of the bond.
The current price of the bond is calculated by computing the present value of the bond.
Enter the below in a financial calculator to compute the present value of the bond:
FV= 1,000
N= 5
PMT= 50
I/Y= 6.37
Press the PMT key and PV to calculate the present value of the bond.
The value obtained is 942.87.
Therefore, the current price of the bond is $942.87.
Current yield is calculated using the below formula:
Current Yield= Annual interest/Current price
= $50 / $942.87
= 0.0530*100
= 5.30%.
3.Information provided:
Face value= future value= $1,000
Time= 4 years
Coupon rate= 4%
Coupon payment= 0.04*1,000= $40
Yield to maturity= 3.44%
The current price of the bond is calculated by computing the present value of the bond.
Enter the below in a financial calculator to compute the present value of the bond:
FV= 1,000
N= 4
PMT= 40
I/Y= 3.44
Press the PMT key and PV to calculate the present value of the bond.
The value obtained is 1,020.60.
Therefore, the current price of the bond is $1,020.60.
jeff jeffy answered 1 year agoRelated Solutions
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