1) A corporation has 8% coupon bonds outstanding that make annual payments (not
ID: 2415704 • Letter: 1
Question
1) A corporation has 8% coupon bonds outstanding that make annual payments (not semiannual) with a YTM of 7.2%. The current yield on these bonds is 7.55%. How many more years do these bonds have left until they mature?
2) Bond P is a premium bond that carries a 10% coupon rate. A separate bond-Bond D is a discount bond and has a 4% coupon rate. Each of these bonds makes an annual payment (not semiannual) and have a 7% YTM with 10 full years until they mature. Assume that market interest rates do not change, What is the expected capital gains yield over the next year for both Bond P and Bond D
Please show your work and not just an answer. I have an idea of how to do these, but honestly get a little more stuck on the alegebra parts and how you get each number. Have found the answer on here for part 2 already but they didn't really explain why they used $100 in the problem or how they got certain numbers. Thank you.
Explanation / Answer
1
53.41 (by excel function)
2
Assuming face value of each bond as $ 100
current price = 8/0.0755 ie=105.96 r 7.20% PV 105.96 PMT 8 FV 100 no of period53.41 (by excel function)
2
Assuming face value of each bond as $ 100
BOND p BOND d pmt 10 4 rate 7% 7% no of period 10 10 PV $70.24 $28.09 capital gain yield (sale price-purchase price)/purchase price 42.38% 255.94% yield per year 4.24% 25.59%Related Questions
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