Question

1. $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 12%?

2. A $1,000 par-value bond with 5 years of maturity pays 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 12%?

3. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $890. The bonds may be called in 4 years for 120.0% of the par value ($1200). What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity?

4. BBB, Inc. bonds have a par value of $1,000, a 33-year maturity, and an annual coupon rate of 12.0% with annual coupon payments. The bonds are currently selling for $923. The bonds may be called in 4 years for 112.0% of par ($1120). What quoted annual rate of return do you expect to earn if you buy the bonds and company calls them when possible?

Answer 1

1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =5

Bond Price =∑ [(5*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^5

k=1

Bond Price = 747.67

2

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =5x2

Bond Price =∑ [(5*1000/200)/(1 + 12/200)^k]     +   1000/(1 + 12/200)^5x2

k=1

Bond Price = 742.4

Please ask remaining parts seperately, questions are unrelated, I have done one bonus