Question

In: Finance

A GM and a Ford bond both have 4 years to maturity. GM has a annual...

A GM and a Ford bond both have 4 years to maturity. GM has a annual coupon rate of 0.061, while Ford has a annual coupon rate of 0.06. Both bonds are semiannual and have a face value of $1000.

a.The GM bond trades at 962.35. What is the yield to maturity (YTM)?

b.What is the price of the Ford bond?

Solutions

Expert Solution

a.Face value= Future value= $1,000

Time= 4 years*2= 8 semi-annual periods

Coupon rate= 0.061/2= 0.0305

Coupon payment= 0.0305*1,000= $30.50

Present value= $962.35

The yield to maturity is calculated by entering the below in the financial calculator:

FV= 1,000

PV= -962.35

N= 8

PMT= 30.50

Press the CPT key and I/Y to calculate the yield to maturity.

The value obtained is 3.60% for a semi-annual period and 3.60%*2= 7.20%. for an annual period.

Therefore, the yield to maturity of the GM bond is 7.20% for a year.

b. Face value= Future value= $1,000

Time= 4 years*2= 8 semi-annual periods

Coupon rate= 0.06/2= 0.03

Coupon payment= 0.03*1,000= $30

The price of the Ford bond is calculated by calculating the present value of the bond.

The present value of the Ford bond is calculated by entering the below in a financial calculator:

FV= 1,000

N= 8

PMT= 30

Press the CPT key and PV to calculate the present value.

The value obtained is 1,240.

Therefore, the value of the Ford bond is $1,240.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A GM and a Ford bond both have 4 years to maturity. GM has a annual...

A GM and a Ford bond both have 4 years to maturity. GM has a annual coupon rate of 0.066, while Ford has a annual coupon rate of 0.054. Both bonds are semiannual and have a face value of $1000. The GM bond trades at 969.39. What is the yield to maturity (YTM)? What is the price of the Ford bond?

A 4% annual coupon bond has 5 years remaining until maturity and is priced to yield...

A 4% annual coupon bond has 5 years remaining until maturity and is priced to yield 6%. (a) What is the price per 100 of par? (b) For this bond, estimate the price value of a basis point by first considering an increase in yield and then a decrease in yield. (c) Now show that for very small price changes, the absolute value of a bond’s price change does not differ much conditional on whether the yield change is a...

A 4% annual coupon corporate bond with two years remaining to maturity has a Z-spread of...

A 4% annual coupon corporate bond with two years remaining to maturity has a Z-spread of 200 bps. The two-year, 2% annual payment government benchmark bond is trading at a price of 98.106. The one-year and two-year government spot rates are 2% and 3%, respectively, stated as effective annual rates.Assume all interest paid annually. (a)Calculate the corporate bond price. (b)Calculate the G-spread, the spread between the yields-to-maturity on the corporate bond and the government bond having the same maturity.

QUESTION Bond A has 4 years left to maturity and Bond B has 8 years left...

QUESTION Bond A has 4 years left to maturity and Bond B has 8 years left to maturity. They both have a 6% coupon rate, pays semiannually, and yield is 5%. Calculate the percentage change in the price of each bond if interest rates suddenly increased by 2%. A: -7.27%, B: -13.38% A: -6.78%, B: -11.80% A: 7.27%, B 13.38% A: 6.78%, B: 11.80% None of the above QUESTION What does the problem above tell you about interest rate...

a) Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%

a) Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bond? What does this problem tell you about the relationship between interest rate and bond price? b) Consider another bond – Bond D, which is a 10% coupon bond. Similar to Bond C, it has 10 years to maturity. It...

A 10-year GM bond has a 10% coupon rate and was issued 4 years ago. If...

A 10-year GM bond has a 10% coupon rate and was issued 4 years ago. If investors require a return of 12%, calculate the bond’s value. Show the (condensed) time line and key steps of two methods. For the NS method, show the abbreviated equation/expression.

Bond 1 has a 4%annual coupon rate, $1000 maturity value, n = 5 years, YTM =...

Bond 1 has a 4%annual coupon rate, $1000 maturity value, n = 5 years, YTM = 4% (pays a $40 annual coupon at the end of each year for each of the 5 years and $1,000 maturity payment at the end of year 5). Bond 2 is a zero couponbond with a $1000 maturity value, and n = 5 years; YTM= 4%. (pays no coupons; only a $1,000 maturity payment at the end of year 5) a. For the Zero...

A bond has a par value of $1,000, has 30 years to maturity, and makes annual...

A bond has a par value of $1,000, has 30 years to maturity, and makes annual coupon payments of $50. Which of the following statements is NOT true? Group of answer choices At a market interest rate of 5%, the bond sells for par. If the bond’s market interest rate is 6%, the bond sells at a discount. If the bond’s market interest rate is 5%, and if this bond paid semiannual coupons, the price would be higher holding everything...

BOND VALUATION Bond X is noncallable and has 20 years to maturity, a 8% annual coupon,...

BOND VALUATION Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 8%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10%. How much should you be willing to pay for Bond X today? (Hint: You will...

Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes...

Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bond? What does this problem tell you about the relationship between interest rate and bond price? Consider another bond – Bond D, which is a 10% coupon bond. Similar to Bond C, it has 10 years to maturity. It also makes semi-annual...

Subjects