Given the following information quoted from yahoo.Finance (or Wall Street journa

Question

Given the following information quoted from yahoo.Finance (or Wall Street journal bond section) for today and given in the tollowing table. Assume that Today is February 15, 2009 Type Bond What is the price of this bond (assume a S1,000 par value)? What is the current yield of this bond?? Hint: Make sure to round all intermediate calculations to at least six decimal places. Final answer to be rounded to two decimals What is the price in dollars of the August 2003 bond? $(Do not enter a S sign. Use commas to separate thousands and use two decimals. Round to the nearest cent. For example, if the price you obtained is $1,187.659321 then enter 1,187.66) What is the currrent yield of the August 2003 bond? ssue Date Aug 2003 Coupon Rate Maturity Date 8-15-2018 Current Yield Price YTM Rating 12.000% % (Round to two decimal places. You must enter answer in percentage denomination. For example if the answer you obtained is 0.05247 then enter 5.25)

Explanation / Answer

Since today is Feb 15 2009, we are assuming that the next coupon payment will fall on Aug 15, 2009. Let's calculate the present value of all future payments Coupon payment @ 7.5% =1000*7.5% 75 Date Year Cash flow PV factor @ 12% Present Value 15-Aug-09 0.5 75 0.944911         70.87 15-Aug-10 1 75 0.892857         66.96 15-Aug-11 2 75 0.797194         59.79 15-Aug-12 3 75 0.71178         53.38 15-Aug-13 4 75 0.635518         47.66 15-Aug-14 5 75 0.567427         42.56 15-Aug-15 6 75 0.506631         38.00 15-Aug-16 7 75 0.452349         33.93 15-Aug-17 8 75 0.403883         30.29 15-Aug-18 9 75 0.36061         27.05 15-Aug-18 10 1000 0.321973      321.97 Total PV of all future payments      792.46 Bond price today is 792.46 Current yield =75/792.46 9.46%

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