In: Finance
2.
a.Linebacker Co. has 7 percent coupon bonds on the market with 9 years left to maturity. The bonds make annual payments. If the bond currently sells for $1,080, what is its YTM?
b.Caribbean Reef Software has 8.4 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 95.5 percent of par. What is the YTM?
c.Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment?
Calculate the YTM as follows:
Therefore, the YTM is 5.83%.
-------------------------------------------------------------------------------------------------
Calculate the YTM as follows:
Semiannual YTM is 4.5722%
Annual YTM is 4.5722%*2 9.14%.
----------------------------------------------------------------------------------------------------------------
Calculate the present value of the bond as follows:
Therefore, the present value of the bond is $1,068.02.