In: Finance
A. A $1,000 par value bond that pays interest annually just paid $88 in interest. What is the coupon rate? (Show your answer to 4 decimals.)
B. An 8.2% coupon, 18-year annual bond is priced at $978. What is the current yield for this bond? (Show your answer to 4 decimals.)
C. What is the price of a $1,000 par value semi-annual bond with 13 years to maturity and a coupon rate of 9.5% and a yield-to-maturity of 7.2%?
D. What is the price of a $1,000 par 19 year, annual bond with a 6.4% coupon rate and a yield to maturity of 6.5%?
A.Face value of bond= $1,000
Interest= $88
Coupon rate= Interest/Par value of bond
= $88/$1,000= 0.088 8.80%
B.Time= 18 years
Coupon payments= 5.2% 0.052*1,000= $52
Current price of the bond= $978
Current yield is the annual rate of return based on annual cash payment and the current market price of the bond.
Current Yield= Annual interest/Current price
= $52/$978 = 0.0532*100 = 5.32%.
C.Future value= $1,000
Time= 13 years*2= 26 semi-annual periods
Coupon payment= 9.5% 0.095*1,000= $95
Yield to maturity= 7.20%
The price of the bond is calculated using a financial calculator.
Enter the below in a financial calculator:
FV= 1,000; N= 26; PMT= 95; I/Y= 7.20
Press CPT and PV to calculate the current price of the bond.
The current price of the bond is $1,267.04.
D.Future value= $1,000
Time= 19 years
Coupon payment= 6.40% 0.064*1,000= $64
Yield to maturity= 6.50%
The price of the bond is calculated using a financial calculator.
Enter the below in a financial calculator:
FV= 1,000; N= 26; PMT= 95; I/Y= 6.50
Press CPT and PV to calculate the current price of the bond.
The current price of the bond is $989.27.