Astro Investment Bank has the following bond deals under way: Company Bond Yield

Question

Astro Investment Bank has the following bond deals under way: Company Bond Yield Commission Coupon Rate Maturity Gravity Belts 8.0% 2% of Sale Price 8.0% 10 years Invisible Rays 9.0% 3% of Sale Price 12.0% 10 years Solar Glasses 7.0% 2% of Sale Price 5.0% 20 years Space Ships 12.0% 4% of Sale Price 0% 20 years Determine the net proceeds of each bond and the cost of the bonds for each company in terms of yield. The bond yield in the table is the market yield before the commission is charged. Assume that all bonds are semiannual and issued at a par value of $1,000.

Explanation / Answer

Answer:-

For Gravity Belts the market price is: Mode: P/Y = 2, C/Y =2

Input 20 8.0 40 1000

Keys N I/Y PV PMT FV

CPT $1,000.00

Net Price is $1,000.00 × (1 – 0.02) = $980.00

Yield is: Mode: P/Y = 2, C/Y =2 Input 20 -980.00 40 1000

Keys N I/Y PV PMT FV

CPT 8.2982

Answer:

For Invisible Rays the market price is: Mode: P/Y = 2, C/Y =2

Input 20 9.0 60 1000

Keys N I/Y PV PMT FV

CPT $1,195.12 532

Net Price is $1,195.12 × (1 – 0.03) = $1,159.27

Yield is: Mode: P/Y = 2, C/Y =2

Input 20 -1,159.27 60 1000

Keys N I/Y PV PMT FV

CPT 9.4981

Answer:

For Solar Glasses the market price is: Mode: P/Y = 2, C/Y =2

Input 40 7.0 25 1000

Keys N I/Y PV PMT FV

CPT $786.45 Net Price is $1,000.00 × (1 – 0.02) = $770.72

Yield is: Mode: P/Y = 2, C/Y =2

Input 40 -770.72 25 1000

Keys N I/Y PV PMT FV

CPT 7.1769

Answer:

For Space Ships the market price is: Mode: P/Y = 2, C/Y =2

Input 40 12.0 0 1000

Keys N I/Y PV PMT FV

CPT $97.22

Net Price is $97.22 × (1 – 0.04) = $93.33

Yield is: Mode: P/Y = 2, C/Y =2

Input 40 -93.33 0 1000

Keys N I/Y PV PMT FV

CPT 12.2165

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