What price would you expect to pay for the Kenny Corp. bond? ( Do not round inte
ID: 2740290 • Letter: W
Question
What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
What is the bond’s current yield? (Round your answer to 2 decimal places (e.g., 32.16).)
To calculate the number of years until maturity, assume that it is currently January 15, 2013. Company(Ticker) Coupon Maturity Last
Price Last
Yield EST $ Vol
(000’s) Xenon, Inc. (XIC) 6.600 Jan 15, 2032 94.303 ?? 57,374 Kenny Corp. (KCC) 7.240 Jan 15, 2029 ?? 6.26 48,953 Williams Co. (WICO) ?? Jan 15, 2038 94.855 7.08 43,814 Requirement 1:
What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Requirement 2:What is the bond’s current yield? (Round your answer to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Requirement 1)
Let the par value of bond = $ 1000
Coupon amount = 1000 * 7.24 % * 6 / 12 = $ 36.20 and Time period = 16 * 2 = 32 periods and Yield to maturity (YTM) = 6.26 / 2 = 3.13 %
Price of bond = 36.20 * Cumulative Present value factor for 32 years @ 3.13 % + 1000 * Present value factor for 32TH year @ 3.13 %
Price of bond = 36.20 * 20.0327 + 1000 * 0.3729
Price of bond = $ 1098.08
Conclusion:- The price that you would expect to pay for the Kenny Corp. bond = $ 1098.08
Requirement 2)
Current yield = Annual Coupon amount / Bond Price
= 1000 * 7.24 % / 1098.08
= 72.40 / 1098.08
= 0.0659 i.e., 6.59 %.
Conclusion:- Current yield = 6.59 %.
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