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Do Homework-Charlene X c Secure htps/www.mathxl.com/Studer px?homeworkid :48 14 501 5 1 &questio; d «T&flushed; false&cld-4992773;& back http-nunotes2nuc Notes Wetb Access D Irsc) D ITSceNUnet Home NUnet Phone NUnet Search C. NU's External NU's External Site FIN-320-X5416 Principles of Finance 18EW5 Charlene Foster 6/20/18 2:44 PM Homework: 7-1 MyFinanceLab Assignment Score: 0 of 4 pts P9-6 (similar to) (Related to Checkpoint 9.3) (Bond valuation) Pybus, inc is considering issuing Save 4 of 12 (9 complete) HW Score: 58%, 29 of 50 pts Question Help * bonds that will mature in 24 years with an annual coupon rate of 8 percent Their par value will be $1,000, and the interest will be 24 years with an paid semiannually Pybus is hoping to get a AA rating on its bonds and, if it does, the vield to maturity on similar AA bonds they receive an Arating, the yieid to maturity on similar A bonds is 10.5 percent What will be the price of these bonds if they recerve either an A or a AA rating? s 95 percent However. Pybus is not sure whether the new bonds will receive a AA rating If The pice ohe Pyusbl rain Round to the neares cent)Explanation / Answer
Par Value (F) 1000 No of years 24 Annual Coupon rate 8% Coupon= 1000*8%=80 Semi Annual coupon('C)= 80/2=40 No of coupon payments (n) 24*2=48 If bond receives AA rating , yield to maturity 9.50% Semi annual YTM (i) 9.5/2=4.75 Price of Bond = C*(1-(1/(1+i)^n))/i + F/(1+i)^n = (40*(1-(1/(1+0.0475)^48))/0.0475) + 1000/((1+0.0475)^48) = 859.13 If bond receives A rating , yield to maturity 10.50% Semi annual YTM (i) 10.5/2=5.25 Price of Bond = C*(1-(1/(1+i)^n))/i + F/(1+i)^n = (40*(1-(1/(1+0.0525)^48))/0.0525) + 1000/((1+0.0525)^48) = 782.33
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