1. Jackson Corporation's bonds have 9 years remaining to maturity. Interest is paid annually, the bonds...

1. Jackson Corporation's bonds have 9 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds? Do not round intermediate calculations. Round your answer to the nearest cent.

2. Wilson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? Round your answer to two decimal places.

Solutions

Expert Solution

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1. The current market price of these bonds is $ 942

Working:

Parameters provided in the question:

Time to maturity = 9 years
Par Value = $ 1000
Coupon rate = 9%
Yield to maturity = 10%
Current Market price =?

Using a Financial Calculator to calculate the price of the bond

Substituting values in the financial calculator,

N = 9 as the time to maturity is 9 years
I/Y = 10 as Yield to maturity is 10%
PMT= 90 as Coupon rate is 9% and 9% of $1000
FV= 1000 as face value is redeemed at the maturity and it is equal to $1000

Computing PV which is nothing but the market price of the bond,

PV= Market price of the bond = $ 942

Therefore, the current market price of these bonds is $ 942

2. Yield to maturity is 12.48%

Working:

Parameters provided in the question:

Time to maturity = 12 years
Par Value = $ 1000
Coupon rate = 10 %
Yield to maturity =?
Current Market price = $ 850

Using a Financial Calculator to calculate the price of the bond

Substituting values in the financial calculator,

N = 12 as the time to maturity is 12 years
PV = - 850 as the current market price of the bond is $ 850(Also Negative value is entered to follow the calculator's convention)
PMT= 100 as Coupon rate is 10% and 10% of $1000
FV= 1000 as face value is redeemed at the maturity and it is equal to $1000

Computing I/Y which is nothing but the yield to maturity of the bond,

I/Y= Yield to maturity the bond = 12.48 %

Therefore, the Yield to maturity of these bonds is 12.48 %

jeff jeffy answered 1 year ago

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