Bond and Maturity
5-1 Bond Valuation with Annual payments
Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?
F= par value
C= maturity value
R= coupon rate per coupon payment period
I= effective interest rate per coupon payment period
N= number of coupon paynments
F= 1000 so C should = 1000 r= .08 i= .09 n= 12
The bond price is 928.39
5-2 Yield to Maturity for Annual payments
Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?
Time to maturity= 12 years Par value= $1,000 Coupon rate =10% Price of bond =$850 yield to maturity 12.475
5-6 Maturity Risk Premium
The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?
K=k*+IP+DRP+LP+MRP
Kt-2= 6.3% + 3% +MRP; DRP=lp=0
MRP- .3%
5-7Bond Valuation with Semiannual payments
Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
FV=1000
PMT= 50
N=16
R=4.25%
Pv= $1085.8
5-13 Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
Current yield= annual coupon/current price
8.21%=80/current price
Current price = 974.42
N= 5
I= -974.42
Fv=1000
8.65%
(6-6) If a company’s beta were to double, would its expected return double?
No required return= risk free rate + beta (expected
Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?
F= par value
C= maturity value
R= coupon rate per coupon payment period
I= effective interest rate per coupon payment period
N= number of coupon paynments
F= 1000 so C should = 1000 r= .08 i= .09 n= 12
The bond price is 928.39
5-2 Yield to Maturity for Annual payments
Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?
Time to maturity= 12 years Par value= $1,000 Coupon rate =10% Price of bond =$850 yield to maturity 12.475
5-6 Maturity Risk Premium
The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?
K=k*+IP+DRP+LP+MRP
Kt-2= 6.3% + 3% +MRP; DRP=lp=0
MRP- .3%
5-7Bond Valuation with Semiannual payments
Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
FV=1000
PMT= 50
N=16
R=4.25%
Pv= $1085.8
5-13 Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
Current yield= annual coupon/current price
8.21%=80/current price
Current price = 974.42
N= 5
I= -974.42
Fv=1000
8.65%
(6-6) If a company’s beta were to double, would its expected return double?
No required return= risk free rate + beta (expected