You find the following corporate bond quotes. To calculate the number of years u

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 %

Explanation / Answer

Par Value = $2,000

Annual Coupon Rate = 7.27%
Semiannual Coupon Rate = 3.635%
Semiannual Coupon = 3.635% * $2,000
Semiannual Coupon = $72.70

Time to Maturity = 18 years
Semiannual Period to Maturity = 36

Annual Yield = 5.44%
Semiannual Yield = 2.72%

Current Price = $72.70 * PVIFA(2.72%, 36) + $2,000 * PVIF(2.72%, 36)
Current Price = $72.70 * (1 - (1/1.0272)^36) / 0.0272 + $2,000 / 1.0272^36
Current Price = $2,416.76

Current Yield = Annual Coupon / Current Price
Current Yield = 2 * $72.70 / $2,416.76
Current Yield = 6.02%

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