Question

Selling bonds. Berkman Investment Bank has the following bond deals under​ way shown below. Determine the net proceeds of each bond and the cost of the bonds for each company in terms of yield. The bond yield in the table is the market yield before the bank charges its commission. Assume all bonds are semiannual and issued at a par value of ​$1,000.

Company	Bond Yield	Commission	Coupon Rate	Maturity
Rawlings	6.9%	1.7% of sale price	0.0%	20 years
Wilson	7.8%	3.4 % of sale price	8.8%	20 years
Louis Sluggers	7.6%	2.1 % of sale price	9.3%	10 years
Spalding	7.9%	4.3 % of sale price	7.2%	20 years
Champions	8.1%	3.3 % of sale price	6.7%	30 years

For​ Rawlings, the market price of the bond is ​$ _________ ​(Round to the nearest​ cent.)

The net price of the bond is ​$ ________ ​(Round to the nearest​ cent.)

The yield to maturity of the bond is ________% ​(Round to four decimal​ places.)

For​ Wilson, the market price of the bond is ​$ __________ ​(Round to the nearest​ cent.)

The net price of the bond is ​$ __________ ​(Round to the nearest​ cent.)

The yield to maturity of the bond is ________% (Round to four decimal​ places.)

For Louis​ Sluggers, the market price of the bond is ​$ ________ ​(Round to the nearest​ cent.)

The net price of the bond is ​$ ________ ​(Round to the nearest​ cent.)

The yield to maturity of the bond is ________% (Round to four decimal​ places.)

For​ Spalding, the market price of the bond is ​$ ________ ​(Round to the nearest​ cent.)

The net price of the bond is $ ________ (Round to the nearest​ cent.)

The yield to maturity of the bond is ________% ​(Round to four decimal​ places.)

For​ Champions, the market price of the bond is ​$ _________ ​(Round to the nearest​ cent.)

The net price of the bond is ​$ ________ ​(Round to the nearest​ cent.)

The yield to maturity of the bond is _______% ​(Round to four decimal​ places.)

Answer 1

Bonds are semiannual , so yields should be semiannually , therefore dividing yields by 2 and multiply years by 2

1. For Rawlings

Market Price of Bond = 1000(P/F,3.45%,40) = 1000*0.2575 = $257.5

Net Price of bond = 257.5 +257.5*1.7% = $261.8775

3. For Louis Sluggers

Coupon Rate = 9.3% or 4.65% semiannually, Coupon Payment = $46.5

Maturity = 10 years or 20 semiannual years

Yield = 7.6% annually or 3.8% semiannually

Market Price of Bond = 46.5(P/A,3.8%,20)+1000(P/F,3.8%,20) = 643.29+474.30= $1117.59

Net Price of bond = 1117.59 +1117.59*2.1% = $1141.06

3. For Wilson

Coupon Rate = 8.8% or 4.4% semiannually, Coupon Payment = $44

Maturity = 20 years or 40 semiannual years

Yield = 7.8% annually or 3.9% semiannually

Market Price of Bond = 44(P/A,3.9%,40)+1000(P/F,3.9%,40) = 883.99+257.5 = $1141.49

Net Price of bond = 1141.49 +1141.49*3.4% = $1180.3

4. For Spaldings

Coupon Rate = 7.2% or 3.6% semiannually, Coupon Payment = $36

Maturity = 20 years or 40 semiannual years

Yield = 7.9% annually or 3.95% semiannually

Market Price of Bond = 36(P/A,3.95%,40)+1000(P/F,3.95%,40) = 717.87+212.33= $930.2

Net Price of bond = 930.2 +930.2*4.3% = $970.19

5. For Champions

Coupon Rate = 6.7% or 3.85% semiannually, Coupon Payment = $38.5

Maturity = 30 years or 60 semiannual years

Yield = 8.1% annually or 4.5% semiannually

Market Price of Bond = 38.5(P/A,4.5%,60)+1000(P/F,4.5%,60) = 794.56+71.29 = $865.85

Net Price of bond = 865.85 + 865.85*3.3% = $894.42