Question 6: (Bond valuation) 8 points a. Curley\'s Company\'s bonds have 10 year

Question

Question 6: (Bond valuation) 8 points

a. Curley's Company's bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 4%. The bonds have a yield to maturity (YTM) of 5%. Given these conditions, what should be the current price of these bonds?

b. Larry's Company's bonds have 8 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 4%. The bonds have a current market price of $890. Given these conditions, what should be the yield to maturity (YTM) of these bonds?

Explanation / Answer

Ans)

YTM Face Value 1000 Market Price 890 Interst rate 4% Life 8years 40+(1000-890)/8)/1000+890/2 40+55/945 95/945 YTM 10.05291005 YTM   10%

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