Two years ago, Phutki Corp. issued a $1,000 par value, 11 percent (annual paymen
ID: 2762745 • Letter: T
Question
Two years ago, Phutki Corp. issued a $1,000 par value, 11 percent (annual payment) coupon bond. At the time the bond was issued it had 15 years to maturity. Currently this bond is selling for $1,000 in the bond market. Phutki Corp. is now planning to issue a $1,000 par value bond w ith a coupon rate of 9 percent (semi-annual payments) that will mature 30 years from today. Assuming that the riskiness of the new bond is the same as the previous bond (i.e., the YTM on the new bond is equal to the current YTM on the previous bond), how much will investor's pay for this new bond Consider a Zerobond (i.e., a bond that pays no coupon payment, meaning that the coupon rate on the bond is 0%) with a par value of $1,000 that will mature exactly 12 years from today. The current YTM of this Zerobond is 5.2%. Two years ago the YTM of the same Zerobond was 4.6%. Calculate the dollar price increase/decrease (2 decimal places) within the last two years. If the bond falls in price, enter your answer on D2L as a negative value (i.e., put a minus sign before your number with no space between the minus sign and the number). If the bond increases in price, record the dollar amount of the increase.Explanation / Answer
19.
i= YTM Rate
n= term
Previous bond is selling at par. Thus, coupon rate is the current YTM of existing bond. Thus, YTM on new coupon = 11% Face value = 1,000 Coupon rate on new bond = 9% Payment of coupon = Semi annual Period of bond = 30 years Adjustment: Term = 60.00 Rate of interest = 4.50% Interest amount = 1000*4.5% = 45.00 Amount ($) Present valueof coupon interest @ 5.5% YTM = 45*17.45 = 45*17.45 = 785 Present value of face value = 1000*.04 = 1000*.04 = 40 825 Thus, investor will pay $ 825 for this new bond. Formula to calculate cumulative discount factor for 60 Terms = (1-(1+i)^-n)/i Discount factor for 60th term = (1+i)^-60Related Questions
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