Problem: 7-3 Bond Valuation Nungesser Corporation\'s outstanding bonds have a $1

Question

Problem: 7-3 Bond Valuation Nungesser Corporation's outstanding bonds have a $1,000 parvalue, a 9% semiannual coupon, 8 years to maturity, and an 8.5%YTM. What is the bond's price? Problem 7-18 Bond Returns: This answer is in the back of the bookbut I dont just want that, I need to know how to get the answer. Itwont get me anywhere if I cant see how to solve it. Last year, Joan purchased a $1,000 face value corporate bondwith an 11% annual coupon rate and a 10-year maturity. At the timeof the purchase, it had an expected yield to maturity of 9.79%. IfJoan sold the bond today for $1,060.49, what rate of return wouldshe have earned for the past year? Problem: 7-3 Bond Valuation Nungesser Corporation's outstanding bonds have a $1,000 parvalue, a 9% semiannual coupon, 8 years to maturity, and an 8.5%YTM. What is the bond's price? Problem 7-18 Bond Returns: This answer is in the back of the bookbut I dont just want that, I need to know how to get the answer. Itwont get me anywhere if I cant see how to solve it. Last year, Joan purchased a $1,000 face value corporate bondwith an 11% annual coupon rate and a 10-year maturity. At the timeof the purchase, it had an expected yield to maturity of 9.79%. IfJoan sold the bond today for $1,060.49, what rate of return wouldshe have earned for the past year?

Explanation / Answer

8 years

Par Value of theBond $1,000 Semiannula Coupon (9% / 2) 4.5% Nubmer of years toMaturity

8 years

Rate of Return (YTM) [8.5% /2] 4.25% Calculating BondPrices: BondValue = Present Value of the Coupons + Present Value ofthe Face Amount Bond Value = C *[1-1/(1+r)t]/r    +    F /(1+r)t Bond Value= [$1,000 * 4.5%] * [1-1/(1+0.0425)8*2] /0.0425 + $1,000 / (1+0.0425)8*2 Bond Value = $45 *[1-1/(1.0425)16] / 0.0425 + $1,000 /(1.0425)16 Bond Value = $45 *11.440306 + [$1,000 / 1.946332427] Bond Value = $514.81 +$513.78 Bond Value= $1,028.59

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