need some help with the above problem Booker Petroleum Refiners (BPR) has an iss
ID: 2743143 • Letter: N
Question
need some help with the above problem
Booker Petroleum Refiners (BPR) has an issue of 12-year, 10% annual coupon bonds outstanding. The bonds, which were originally issued 20 years ago, have a face value (FV) of $1,000, a yield- to -maturity (YTM) of 9%, and are non callable What is the current market price of BPR's bonds? $910.87 $1, 178.77 $1, 071.61 $1, 339.51 Are the bonds of Booker Petroleum Refiners selling at a discount, at par, or at a premium? Discount Par Premium What is the current yield on Booker Petroleum Refiner's outstanding bonds? 10.98% 8.48% 9.33% 7.47% What is the expected one-year capital gain yield on the bonds of Booker Petroleum Refiners? -0.30% -0.33% -0.27% -0.39%Explanation / Answer
Bond Value = C/2 {[1-(1+(YTM/2))-2t/(YTM/2)] + [F / (1+ (YTM/2))2t]
B0 = ?
C = $1,000 x 10% = $100
F = $1,000
YTM = 9%
t = 12
Market price of bond = $100 {[1-(1+(0.09))-12/(0.09)] + [$1,000 / (1+ (0.09))12] = $1,071.61
Bonds are selling at “Premium”.
Current Yield = Annual Coupon Payments / Current Market Price => $100/$1,071.61 = 0.0933 or 9.33%
Expected Capital Gain Yield: (Price of bond after one year – Current price of the bond)/ (Current price of the bond)
Price of bond after one year:
=> $100 {[1-(1+(0.09))-11/(0.09)] + [$1,000 / (1+ (0.09))11] = $1,068
Expected one-year Capital Gain Yield => ($1,068 - $1,071.61) / $1,071.61 = -0.0033 or -0.33%
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