LKD Co. has 13 percent coupon bonds with a YTM of 9.7 percent. The current yield
ID: 2769024 • Letter: L
Question
LKD Co. has 13 percent coupon bonds with a YTM of 9.7 percent. The current yield on these bonds is 10.2 percent. How many years do these bonds have left until they mature? Bond Mature Years ?
Suppose you buy a 8.4 percent coupon bond today for $1,110. The bond has 8 years to maturity.
What rate of return do you expect to earn on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Suppose you buy a 8.4 percent coupon bond today for $1,110. The bond has 8 years to maturity.
Explanation / Answer
Q.1
LKD Co. has 13 percent coupon bonds with a YTM of 9.7 percent. The current yield on these bonds is 10.2 percent. How many years do these bonds have left until they mature? Bond Mature Years ?
Let us assume FV= $100, Coupon= 13%*100= $13, YTM=9.7%,
Current yield= anual coupon payment/ bond price
10.2%=13/Price
Price= 13/10.2%=127.451
put price as -127.451 as we have to pay that to buy bond
Using above data and putting it in finacial calculator we can get value of N
N=17.76 Years left until bond maturity
Q.2 Suppose you buy a 8.4 percent coupon bond today for $1,110. The bond has 8 years to maturity.
FV= 1000, PV=-1110, Coupon= 8.4%*1000=84, N=8
I/Y= 6.59%
Rate of return on bond= 6.59%
b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for
FV= 1000, PV=?, Coupon= 8.4%*1000=84, N=6
I/Y= 6.59%+2%=8.59%
Price = $991.37
Bond will sell for $991.37
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