Question

2. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 10 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds?

3. Wilson Wonders’s bonds have 10 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 $900. What is their yield to maturity?

4. Heath Foods’s bonds have 10 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 9%. They pay interest annually and have a 10% coupon rate. What is their current yield?

Answer 1

2)

Coupon Rate for Half Year = 10/2 = 5%. Therefore, Cash Flows every half year = 1000*5% = $50.

Discounting Rate for every half year = 9/2 = 4.5%

Period	Cash Flow	Discounting Factor [1/(1.045^year)]	PV of Cash Flows (cash flows*discounting factor)
1	50	0.956937799	47.84688995
2	50	0.915729951	45.78649756
3	50	0.876296604	43.8148302
4	50	0.838561344	41.92806718
5	50	0.802451047	40.12255233
6	50	0.767895738	38.39478691
7	50	0.734828458	36.74142288
8	50	0.703185127	35.15925635
9	50	0.672904428	33.64522139
10	50	0.643927682	32.1963841
11	50	0.616198739	30.80993694
12	50	0.589663865	29.48319324
13	50	0.564271641	28.21358205
14	50	0.539972862	26.99864311
15	50	0.516720442	25.83602212
16	50	0.494469323	24.72346614
17	50	0.473176385	23.65881927
18	50	0.452800369	22.64001844
19	50	0.433301788	21.66508942
20	50	0.41464286	20.73214298
20	1000	0.41464286	414.6428597
		Price of the Bond = Sum of PVs	1065.039682 = 1065.04

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