ADelpilar W4 Problem Set
Bonds-1. Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1,000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years.
P= CPN x (1/y) {1-[1/(1+y)^n] + [FV/ (1+y)^n]
CPN= 1000 x .08= 80
P= 80 (1/.09) {1- [1/(1.09)^5]} + [1000/(1.09)^5]
= 73.39 (.351) + 649.35
= $675.11
Bonds-2. A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%. The bonds are currently selling for $850. What is their YTM?
850= 1000/ (1+y)^12
850 * (1+y)^12= 1000
(1+y) ^12= 1.18
1+y= (1.18)^(1/12)
Y= 1.014-1
Y= .014 or 1.4%
Bonds-3. A certain bond pays a semiannual coupon rate at a 10% annual rate. The bond has a par value of $1,000. There are eight years to maturity. The yield to maturity is 9%. What is the current price of the bond?
$1000 * 10%/2= 50
P= 50 * (1/.09) {1-[1/(1.09)^8} + [1000/(1.09)^8]80.29
= 555.56 (.50) + 502.51
= 277.78+ 502.51
= $780.29
Bonds-4. A particular corporate bond has a par value of $1,000. Coupon payments are $40 and are paid twice a year. Seven years are left on the life of the bond.The YTM is 9%. What is the price of the bond?
P= 80 * (1/.09) {1-{1/(1.09)^7} + [1000/(1.09)^7]
= 888.89 (.45) + 546.45
P= $946.45
Bond-5. A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 5% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
P= 50 * (1/.05) {1-[1/(1.05)^5} + [1000/(1.05)^5]
= 1000 (.22) + 781.25
= 220.00 + 781.25
P= $1001.25
Bond-6. A given bond has five years left to maturity. Interest is paid annually and the annual coupon rate is 9%. The par value of the bond is $1,000. The bond currently sells for $1,000. What is the yield to maturity?
1000= 90 (1/y) {1-[1/ (1+y)^5]} + {1000/ (1+y)^5}
EXCEL FORMULA : RATE (5, 90, -1000, 1000)
RATE: 9%
9-1. Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year,
P= CPN x (1/y) {1-[1/(1+y)^n] + [FV/ (1+y)^n]
CPN= 1000 x .08= 80
P= 80 (1/.09) {1- [1/(1.09)^5]} + [1000/(1.09)^5]
= 73.39 (.351) + 649.35
= $675.11
Bonds-2. A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%. The bonds are currently selling for $850. What is their YTM?
850= 1000/ (1+y)^12
850 * (1+y)^12= 1000
(1+y) ^12= 1.18
1+y= (1.18)^(1/12)
Y= 1.014-1
Y= .014 or 1.4%
Bonds-3. A certain bond pays a semiannual coupon rate at a 10% annual rate. The bond has a par value of $1,000. There are eight years to maturity. The yield to maturity is 9%. What is the current price of the bond?
$1000 * 10%/2= 50
P= 50 * (1/.09) {1-[1/(1.09)^8} + [1000/(1.09)^8]80.29
= 555.56 (.50) + 502.51
= 277.78+ 502.51
= $780.29
Bonds-4. A particular corporate bond has a par value of $1,000. Coupon payments are $40 and are paid twice a year. Seven years are left on the life of the bond.The YTM is 9%. What is the price of the bond?
P= 80 * (1/.09) {1-{1/(1.09)^7} + [1000/(1.09)^7]
= 888.89 (.45) + 546.45
P= $946.45
Bond-5. A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 5% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
P= 50 * (1/.05) {1-[1/(1.05)^5} + [1000/(1.05)^5]
= 1000 (.22) + 781.25
= 220.00 + 781.25
P= $1001.25
Bond-6. A given bond has five years left to maturity. Interest is paid annually and the annual coupon rate is 9%. The par value of the bond is $1,000. The bond currently sells for $1,000. What is the yield to maturity?
1000= 90 (1/y) {1-[1/ (1+y)^5]} + {1000/ (1+y)^5}
EXCEL FORMULA : RATE (5, 90, -1000, 1000)
RATE: 9%
9-1. Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year,