A Best Industries bond has a 10 % coupon rate and a $1,000 face value. Interest

Question

A Best Industries bond has a 10 % coupon rate and a $1,000 face value. Interest is paid semiannually. The bond matures in 19 years. What is the bonds value if investors require a 11 % yield? A Tasrohard Corp. bond has an 7.5% coupon, paid every six years. $1,000 is the par value for the bond, the bond matures in 12 months. If the bond currently sells for $921.37, what is its yield to maturity? Sclco Company bonds are selling in the market for $1, 100. Bonds will mature in 14 years. It pays $70 annual interest. If the bonds are purchased at the market price, what is the (a) coupon rate, (b) current yield, (c) approximate yield to maturity and (d) capital gains yield?

Explanation / Answer

1. Present Value of Bond: = $921

[ Formula = 50 (PVAF 5.5%,38) + 1,000 (PVF 5.5%,38) ]

2. YTM = {37.5 + (1000 - 921.37) / 2 } / (1000 + 921.37) / 2 = 8%

3. a) Coupon Rate = 70 /1100 x 100 = 6.3636%

b) current Yield = 70 / 1100 x 100 = 6.3636%

c) YTM = {70 + (1100 -1100)/14} / (1100 + 1100) / 2 = 6.3636%

d) Capital Gain Yield = (Current selling price - Original price) / Original price = Infinity

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