Question

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000.

Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	EST $ Vol (000’s)
Xenon, Inc. (XIC)	6.900	Jan 15, 2035	94.333	??	57,377
Kenny Corp. (KCC)	7.270	Jan 15, 2034	??	5.44	48,956
Williams Co. (WICO)	??	Jan 15, 2041	94.885	7.14	43,817

What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price            $

What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield             %

Answer 1

(1)-Amount expect to pay for the Kenny Corp. bond

Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

Face Value = $2,000

Semiannual Coupon Amount = $72.70 [$2,000 x 7.27% x ½]

Semiannual Yield to Maturity (YTM) = 2.72% [5.44% x ½]

Maturity Years = 36 Years [(2034 – 2016) x 2]

Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

= $72.70[PVIFA 2.72%, 36 Years] + $2,000[PVIF 2.72%, 36 Years]

= [$72.70 x 22.77364] + [$2,000 x 0.38056]

= $1,655.65 + $761.11

= $2,416.76

“Amount expect to pay for the Kenny Corp. bond = $2,416.76”

(2)-Bond’s Current Yield

Bond’s Current Yield = [Annual Coupon Amount / Bond’s Price] x 100

= [($2,000 x 7.27%) / $2,416.76] x 100

= [$145.40 / $2,416.76] x 100

= 6.02%

“Bond’s Current Yield = 6.02%”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)ⁿ} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.  

--The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)ⁿ], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.