practice bond valuation problems
MBA 8135
Practice Bond Valuation Problems
SOLUTIONS
1. Calculate the current price of a $1,000 par value bond that has a coupon rate of 6% p.a., pays coupon interest annually, has 14 years remaining to maturity, and has a yield to maturity of 8 percent.
PMT = 60; FV = 1000; N = 14; I = 8; CPT PV = 835.12
2. You intend to purchase a 10-year, $1,000 par value bond that pays interest of $60 every six months. If the yield to maturity is 10% with semiannual compounding, how much should you be willing to pay for this bond?
FV = 1000; PMT = 60; N = 20; I = 10/2=; CPT PV = 1124.62
3. What is the price of a $5000 par value bond, with a coupon rate of 7.5% (coupon interest paid quarterly), 15 years remaining to maturity and a yield to maturity of 8.25%?
FV = 5000; PMT = 93.75; N = 60; I = 8.25/4=; CPT PV = 4678.99
4. Dak, Inc. has a bond outstanding with a par value of $10,000 that makes monthly coupon payments. The coupon rate is 9 percent and the bond has 24 years remaining to maturity. If the yield to maturity of similar bonds is 9.35 percent, what is the current price of the bond?
FV = 10000; PMT = 75; N = 288; I = 9.35/12=; CPT PV = 9665.71
5. A ten year bond with a coupon rate of 12% (payable annually) and a par value of $1,000 is selling for $1,192.50 today. What is the bond’s yield to maturity?
PV = -1192.50; PMT = 120; FV = 1000; N = 10; CPT I/Y = YTM = 9.00%
6. What is the yield to maturity of a 20 year, $100 par value bond, that pays a 10% coupon semi-annually, given that the bond's current market price is $85?
PV = -85; FV = 100; N = 40; PMT = 5; CPT I = 5.9965, so YTM = 11.99 = 12%
7. What is the yield to maturity of a 20 year, $7,500 par value bond that pays coupon interest of $112.50 every 3 months, and has a current price of $9210.45?
PV = -9210.45; FV = 7500; N = 80; PMT = 112.50; CPT I/Y = 1.0737, so YTM = 4.29%
8. What is the price of a zero coupon bond that has a par value of $1000 and 8 years to maturity if the yield on similar bonds
Practice Bond Valuation Problems
SOLUTIONS
1. Calculate the current price of a $1,000 par value bond that has a coupon rate of 6% p.a., pays coupon interest annually, has 14 years remaining to maturity, and has a yield to maturity of 8 percent.
PMT = 60; FV = 1000; N = 14; I = 8; CPT PV = 835.12
2. You intend to purchase a 10-year, $1,000 par value bond that pays interest of $60 every six months. If the yield to maturity is 10% with semiannual compounding, how much should you be willing to pay for this bond?
FV = 1000; PMT = 60; N = 20; I = 10/2=; CPT PV = 1124.62
3. What is the price of a $5000 par value bond, with a coupon rate of 7.5% (coupon interest paid quarterly), 15 years remaining to maturity and a yield to maturity of 8.25%?
FV = 5000; PMT = 93.75; N = 60; I = 8.25/4=; CPT PV = 4678.99
4. Dak, Inc. has a bond outstanding with a par value of $10,000 that makes monthly coupon payments. The coupon rate is 9 percent and the bond has 24 years remaining to maturity. If the yield to maturity of similar bonds is 9.35 percent, what is the current price of the bond?
FV = 10000; PMT = 75; N = 288; I = 9.35/12=; CPT PV = 9665.71
5. A ten year bond with a coupon rate of 12% (payable annually) and a par value of $1,000 is selling for $1,192.50 today. What is the bond’s yield to maturity?
PV = -1192.50; PMT = 120; FV = 1000; N = 10; CPT I/Y = YTM = 9.00%
6. What is the yield to maturity of a 20 year, $100 par value bond, that pays a 10% coupon semi-annually, given that the bond's current market price is $85?
PV = -85; FV = 100; N = 40; PMT = 5; CPT I = 5.9965, so YTM = 11.99 = 12%
7. What is the yield to maturity of a 20 year, $7,500 par value bond that pays coupon interest of $112.50 every 3 months, and has a current price of $9210.45?
PV = -9210.45; FV = 7500; N = 80; PMT = 112.50; CPT I/Y = 1.0737, so YTM = 4.29%
8. What is the price of a zero coupon bond that has a par value of $1000 and 8 years to maturity if the yield on similar bonds