1) Suppose you have a semi-annual coupon paying bond that has 10 years of maturi
ID: 2632816 • Letter: 1
Question
1) Suppose you have a semi-annual coupon paying bond that has 10 years of maturity left, has a par value
of $65,100, has a coupon rate of 7.23%, and has just paid its most recent coupon payment 10 days ago.
Currently, this bond trades for 97:13. What is this bond's annual yield as reported by the financial press?
What is this bond's annual yield based on a Time Value of Money-correct calculation?
2)Suppose you have a semi-annual coupon paying bond that has 10 years of maturity left, a time to call of
6 years, has a coupon rate of 7.23%, a call premium of 15%, has a par value of $65,100, and has just
paid its most recent coupon payment 10 days ago. Currently, this bond trades for 97:13. What is this
bond's annual yield as reported by the financial press? What is this bond's annual yield based on a Time
Value of Money-correct calculation
Explanation / Answer
Face Value = $65,100
97:13 = 97.40625
Current Price = $65,100 x 97.40625% = $63411.47
Days to Maturity = 10 years x 365 = 3650
a.
Bond's Equivalent Yield = Face Value - Current Price/ current price x 365/3650
Bond's Equivalent Yield = $65,100 - $63,411.47/$63,411.47 x 365/3650 = 0.27%
b.
Face Value = $65,100
Current Price = $63,411.47
PMT = $65100 x 7.23%/2 = $2353.37
NPer = 10 x 2 = 20 periods
Yield to maturity (calculated in excel using rate function) = 2 x 3.80 = 7.61%
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