1- Calculate the yield to maturity on the following bonds: A- A 8.6 percent coup
ID: 2825510 • Letter: 1
Question
1- Calculate the yield to maturity on the following bonds:
A- A 8.6 percent coupon (paid semiannually) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915.
B- An 5.7 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $911.
C- An 7.7 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,061.
(For all requirements, do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))
2- Financial analysts forecast L Brands (LB) growth for the future to be 12.4 percent. LB's most recent dividend was $1.70. What is the fair present value of L Brands’s stock if the required rate of return is 15.8 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
a. Yield to maturity % per year b. Yield to maturity % per year c. Yield to maturityExplanation / Answer
1.
a.
Yield to maturity
9.962%
Per year
b.
Yield to maturity
6.942%
Per year
c.
Yield to maturity
6.691%
Per year
Working:
Using financial calculator BA II Plus - Input details:
a.
b.
c.
FV = Future Value =
-$1,000.00
-$1,000.00
-$1,000.00
PV = Present Value =
$915.00
$911
$1,061
N = Total number of periods = Years x frequency =
20
40
8
PMT = Payment = Coupon / frequency =
-$43.00
-$14.25
-$77.00
CPT > I/Y = Rate or YTM =
4.9810
1.7354
6.6907
Convert Yield in annual and percentage form = Yield*Frequency / 100 =
9.962%
6.942%
6.691%
2.
Fair present value = Dividend x (1+Growth rate)/(Required rate - growth rate)
Fair present value = 1.7 x (1+12.4%)/(15.8% - 12.4%)
Fair present value = $56.20
a.
Yield to maturity
9.962%
Per year
b.
Yield to maturity
6.942%
Per year
c.
Yield to maturity
6.691%
Per year
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