Draw the time line for an 8-year 5% annual coupon bond with a face value of $100

Question

Draw the time line for an 8-year 5% annual coupon bond with a face value of $1000. Compute the price of the bond assuming the yield to maturity is: Draw the time line for a 12-year 4% annual coupon bond with a face value of $1000. Compute the current yield and the yield to maturity for the bond assuming the price is: A 5-year 5% BB-rated corporate bond's yield to maturity is 4%. The bond gets upgraded to AA-. It's yield is likely to be. Compute the coupon rate for a 3-year annual coupon bond assuming the price is 98 and the yield is 6. 1%.

Explanation / Answer

1.

Price of bond A= 50PVIFA(3%,8)+1000PVIF(3%,8)= $1140.393

Price of nond B= 50PVIFA(7%,8)+1000PVIF(7%,8)= $880.574

2.

YTM of bond A

1090=40PVIFA(YTM,12)+1000PVIF(YTM,12)

the YTM= 3.09%

Current yeid= 40/1090= 3.7%

YTM of bond B

970= 40PVIFA(YTM,12)+1000PVIF(YTM,12)

the YTM= 4.33%

Current yeid= 40/970= 4.124%

3.Price= $1044.518

higher than 4%

lower than 5%

price will go down

4.

coupon =5.3%

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