Question
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West Corp. issued 13-year bonds 2 years ago at a coupon rate of 9.4 percent. The...
West Corp. issued 13-year bonds 2 years ago at a coupon rate of
9.4 percent. The bonds make semiannual payments. If these bonds
currently sell for 98 percent of par value, what is the
YTM?
Solutions
Expert Solution
| Since bond was issued 2 year before so remaining term for the bond is 13-2=11 years | |||||||||
| Frequency in a year | 2 | ||||||||
| YTM | |||||||||
| Coupon rate | 9.40% | ||||||||
| Face value | $ 1,000 | ||||||||
| Coupon payment | $ 47.00 | =1000*9.4%/2 | |||||||
| Years to maturity | 11 | ||||||||
| No. of periods | 22 | ||||||||
| Purchase price | $ 980.00 | 1000*98% | |||||||
| 4.00% | 5.00% | ||||||||
| Year | Cash Flow | PV factor = 1/ (1+r)^t | PV | PV factor = 1/ (1+r)^t | PV | ||||
| 0 | $ (980.00) | 1.000 | $ (980) | 1.000 | $ (980.00) | ||||
| 1 | $ 47.00 | 0.962 | $ 45 | 0.952 | $ 44.76 | ||||
| 2 | $ 47.00 | 0.925 | $ 43 | 0.907 | $ 42.63 | ||||
| 3 | $ 47.00 | 0.889 | $ 42 | 0.864 | $ 40.60 | ||||
| 4 | $ 47.00 | 0.855 | $ 40 | 0.823 | $ 38.67 | ||||
| 5 | $ 47.00 | 0.822 | $ 39 | 0.784 | $ 36.83 | ||||
| 6 | $ 47.00 | 0.790 | $ 37 | 0.746 | $ 35.07 | ||||
| 7 | $ 47.00 | 0.760 | $ 36 | 0.711 | $ 33.40 | ||||
| 8 | $ 47.00 | 0.731 | $ 34 | 0.677 | $ 31.81 | ||||
| 9 | $ 47.00 | 0.703 | $ 33 | 0.645 | $ 30.30 | ||||
| 10 | $ 47.00 | 0.676 | $ 32 | 0.614 | $ 28.85 | ||||
| 11 | $ 47.00 | 0.650 | $ 31 | 0.585 | $ 27.48 | ||||
| 12 | $ 47.00 | 0.625 | $ 29 | 0.557 | $ 26.17 | ||||
| 13 | $ 47.00 | 0.601 | $ 28 | 0.530 | $ 24.93 | ||||
| 14 | $ 47.00 | 0.577 | $ 27 | 0.505 | $ 23.74 | ||||
| 15 | $ 47.00 | 0.555 | $ 26 | 0.481 | $ 22.61 | ||||
| 16 | $ 47.00 | 0.534 | $ 25 | 0.458 | $ 21.53 | ||||
| 17 | $ 47.00 | 0.513 | $ 24 | 0.436 | $ 20.51 | ||||
| 18 | $ 47.00 | 0.494 | $ 23 | 0.416 | $ 19.53 | ||||
| 19 | $ 47.00 | 0.475 | $ 22 | 0.396 | $ 18.60 | ||||
| 20 | $ 47.00 | 0.456 | $ 21 | 0.377 | $ 17.71 | ||||
| 21 | $ 47.00 | 0.439 | $ 21 | 0.359 | $ 16.87 | ||||
| 22 | $ 47.00 | 0.422 | $ 20 | 0.342 | $ 16.07 | ||||
| 22 | $ 1,000.00 | 0.422 | $ 422 | 0.342 | $ 341.85 | ||||
| Total | $ 121 | Total | $ (19.49) | ||||||
| NPV @ 0.04 | 121.16 |
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