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Problem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-Through Problem 7-1 Bond valuation Callaghan Motors' bonds have 22 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 6%, and the yield to maturity is 12%. What is the bond's current market price? Round your answer to the nearest cent. $ 3. Problem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-Through Problem 7-2 Yield to maturity and future price A bond has a $1,000 par value, 8 years to maturity, and a 7% annual coupon and sells for $980. a. What is its yield to maturity (YTM)? Round your answer to two decimal places. % b. Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Round your answer to the nearest cent. $ Problem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-ThroughProblem Walk-Through Problem 7-3 Bond valuation Nungesser Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 19 years to maturity, and an 8% YTM. What is the bond's price? Round your answer to the nearest cent. $Explanation / Answer
2 Callaghan Motors Bond Price calculation Bond Par Value 1,000 Annual Interest 60 YTM = 12% Period Cash Flow from ineterst & Maturity PV factor @12% Pv of Cash flows Year 1 60 0.893 53.57 Year 2 60 0.797 47.83 Year 3 60 0.712 42.71 Year 4 60 0.636 38.13 Year 5 60 0.567 34.05 Year 6 60 0.507 30.40 Year 7 60 0.452 27.14 Year 8 60 0.404 24.23 Year 9 60 0.361 21.64 Year 10 60 0.322 19.32 Year 11 60 0.287 17.25 Year 12 60 0.257 15.40 Year 13 60 0.229 13.75 Year 14 60 0.205 12.28 Year 15 60 0.183 10.96 Year 16 60 0.163 9.79 Year 17 60 0.146 8.74 Year 18 60 0.130 7.80 Year 19 60 0.116 6.97 Year 20 60 0.104 6.22 Year 21 60 0.093 5.55 Year 22 1,060 0.083 87.60 Total $ 541.32 So Current Bond price =$541.32 3 YTM Formula= [Annual Interest+(Par Value-Market Value)/Years to Maturity]/(Par value+Market Price*2)/3 Given : Bond Par Value 1,000 Market Price of Bond 980.00 Years to Maturity 8 Annual Interest @7%= 70.00 YTM =[70+(1000-980)/8]/(1000+980*2)/3 YTM =7.34% If the YTM remains same for nexy 2 years , then Years to maturity = 6 Bond Price calculation : Year Cash Flow from ineterst & Maturity PV factor @7.34% Pv of Cash flows Year 1 70 0.932 65.21 Year 2 70 0.868 60.75 Year 3 70 0.809 56.60 Year 4 70 0.753 52.73 Year 5 70 0.702 49.12 Year 6 1,070 0.654 699.54 Total $ 983.96 So Bond Price after 2 years will be = $ 983.96 4 Bond Par value 1,000 Semi annual coupon @6% 60 Semi annual YTM = 4% Maturity period =19 years Bond Price calculation: Period Cash Flow from ineterst & Maturity PV factor @4% Pv of Cash flows Period 1 60 0.962 58 Period 2 60 0.925 55 Period 3 60 0.889 53 Period 4 60 0.855 51 Period 5 60 0.822 49 Period 6 60 0.790 47 Period 7 60 0.760 46 Period 8 60 0.731 44 Period 9 60 0.703 42 Period 10 60 0.676 41 Period 11 60 0.650 39 Period 12 60 0.625 37 Period 13 60 0.601 36 Period 14 60 0.577 35 Period 15 60 0.555 33 Period 16 60 0.534 32 Period 17 60 0.513 31 Period 18 60 0.494 30 Period 19 60 0.475 28 Period 20 60 0.456 27 Period 21 60 0.439 26 Period 22 60 0.422 25 Period 23 60 0.406 24 Period 24 60 0.390 23 Period 25 60 0.375 23 Period 26 60 0.361 22 Period 27 60 0.347 21 Period 28 60 0.333 20 Period 29 60 0.321 19 Period 30 60 0.308 18 Period 31 60 0.296 18 Period 32 60 0.285 17 Period 33 60 0.274 16 Period 34 60 0.264 16 Period 35 60 0.253 15 Period 36 60 0.244 15 Period 37 60 0.234 14 Period 38 1,060 0.225 239 Total $ 1,387.36 So Bond Price is $1,387.36
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