Muster! Manufacturing Corporation (MMC) has an issue of 10-year, 6% annual coupo

ID: 2656135 • Letter: M

Question

Muster! Manufacturing Corporation (MMC) has an issue of 10-year, 6% annual coupon bonds outstanding. The bonds, which were originally issued 20 years ago, have a face value (FV) of $1,000, a yield-to-maturity (YTM) of 6%, and are noncallable. What is the current market price of MMC's bonds? $1,100.00 O $850.00 $1,250.00 O $1,000.00 Are the bonds of Musterl Manufacturing Corporation selling at a discount, at par, or at a premium? Par Premium O Discount What is the current yield on Musterl Manufacturing Corporation's outstanding bonds? 4.80% 7.06% 5.45% 6.00% What is the expected one-year capital gain yield on the bonds of Musterl Manufacturing Corporation? 0.00% 12.00% 0 6.00% 9.00%

Explanation / Answer

Correct option is > $1,000.00

Using financial calculator BA II Plus - Input details:

I/Y = Rate or yield / frequency of coupon in a year =

6.000000

PMT = Coupon rate x FV / frequency =

-$60.00

N = Number of years remaining x frequency =

20.00

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$1,000.00

Correct option is > Par

As YTM = Coupon rate ; Bond is trading at Par or Face Value or Issued price

Correct option is > 6.00%

Current yield = Coupon / Bond price = 60 / 1000 = 6.00%

Correct option is > 0.00%

Capital gains yield = YTM - Current Yield = 6.00% - 6.00%

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I have solved first four questions. Thanks.