2. a.Linebacker Co. has 7 percent coupon bonds on the market with 9 years left to...

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?

Solutions

Expert Solution

Calculate the YTM as follows:

Therefore, the YTM is 5.83%.

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Calculate the YTM as follows:

Semiannual YTM is 4.5722%

Annual YTM is 4.5722%*2 9.14%.

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Calculate the present value of the bond as follows:

Therefore, the present value of the bond is $1,068.02.

jeff jeffy answered 1 year ago

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