Question

In: Finance

A. A $1,000 par value bond that pays interest annually just paid $88 in interest. What...

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%?

Solutions

Expert Solution

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.

jeff jeffy answered 1 year ago

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