Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the

Question

Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%. Is the bond selling at a premium or a discount? Why? Be sure to show how you arrived at your answer. What other factors may influence the value of a bond?

TOYOTA MTR CRD CORP MTN BE

As of 23-Jul-2015

OVERVIEW

Price:

100.66

Coupon (%):

1.000

Maturity Date:

17-Feb-2015

Yield to Maturity (%):

-2.243

Current Yield (%):

0.993

Fitch Ratings:

AA

Coupon Payment Frequency:

Semi-Annual

First Coupon Date:

17-Aug-2012

Type:

Corporate

Callable:

No

TOYOTA MTR CRD CORP MTN BE

As of 23-Jul-2015

Explanation / Answer

Using calculations relating to 5% - this bond is selling at discount because of its long maturity date.

MICROSOFT CORP As of 24-Jul-2015 Price: 96.54 Coupon (%): 3.50% Maturity Date: 15-Nov-42 Yield to Maturity (%): 3.70% Current Yield (%): 3.625 Fitch Ratings: AAA Coupon Payment Frequency: Semi-Annual First Coupon Date: 15-May-13 Type: Corporate Callable: No Required Yield 5% 2.500% Coupon Rate Semi annual 3.50% 1.75% Coupon =(100 x 3.50%/2) $          1.75 Maturity date (NPER) 28 years approx 56 Future value (FV) $                   100.00 $     100.00 Present value of bonds $77.53

Using calculations relating to 5% - this bond is selling at discount because of its long maturity date.

PVo = ( coupon) (1 – [1/ (1 + r)] )/R     + ( par value )/(1+r)^m PV0 = $1.75 x(1-(1/(1+2.5%)^56))/2.50% + ($100/(1+2.50% )^56 $                     77.53

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