Question

Hey, can you do these questions?

2. Bond Yields (LO1, CFA2) Rolling Company bonds have a coupon rate of 4 percent, 14 years to maturity, and a current price of $1,086. What is the YTM? The current yield?

3. Bond Prices (LO1, CFA3) A bond has a coupon rate of 8.2 percent and 9 years until maturity. If the yield to maturity is 7.4 percent, what is the price of the bond?

4. Bond Prices (LO1, CFA3) A bond with 25 years until maturity has a coupon rate of 7.2 percent and a yield to maturity of 6 percent. What is the price of the bond?

Answer 1

Part 2:
Coupon rate=4%
Number of periods=14 years
Present value=$1,086
We can take face value of the bond as $1000 for better calculations.
Coupon payment=Face value*Coupon rate=$1000*4%=$40
In the excel sheet, the negative sign in the present value shows that it is a cash outflow.
The values of yield to maturity we calculated using excel is:
Yield to maturity=3%

Current yield=Coupon payment/Current bond value
=$40/$1,086=0.036832413 or 3.68%

Part 3:
Coupon rate=8.2%
Number of periods=9 years
Yield to maturity=7.4%
We can take face value of the bond as $1000 for better calculations.
Coupon payment=Face value*Coupon rate=$1000*8.2%=$82
The value we calculated using excel for present value or price of the bond is:
Present value=$1051.25

Part 4:
Number of periods=25 years
Coupon rate=7.2%
Yield to maturity=6%
We can take face value of the bond as $1000 for better calculations.
Coupon payment=Face value*Coupon rate=$1000*7.2%=$72
The value we calculated using excel for present value or price of the bond is:
Present value=$1153.4