Orkney House is issuing bonds paying $62 per year but paid semianaully that will

Question

Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. Calculate: a) Coupon rate b) Current yield c) The yield to maturity d) The market price of the bond if the market rates for bonds of equal risk changed to 5%. Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. Calculate:

Explanation / Answer

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$1,000.00

PV = Present Value =

-$975.00

N = Total number of periods = Years x frequency of coupon =

26

PMT = Payment = Coupon / frequency of coupon =

$31.00

CPT > I/Y = Rate or YTM Semiannual =

                 3.2438

a.       Coupon rate = PMT x 2 / FV = 31 x 2 / 1000 = 6.20%

b.       Current Yield = PMT x 2 / PV = 31 x 2 / 975 = 6.36%

c.       Convert Yield in annual and percentage form = YTM = Yield / 100*2 = 6.49%

d.       New Market Price of the bond = $1,113.70 (working below)

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / 2 =

2.50

PMT = Payment /2 =

-$31.00

N = Total number of remaining periods =

26

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$1,113.70

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$1,000.00

PV = Present Value =

-$975.00

N = Total number of periods = Years x frequency of coupon =

26

PMT = Payment = Coupon / frequency of coupon =

$31.00

CPT > I/Y = Rate or YTM Semiannual =

                 3.2438

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