1) Lycan, Inc., has 7.4 percent coupon bonds on the market that have 6 years lef
ID: 2626444 • Letter: 1
Question
1) Lycan, Inc., has 7.4 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments. Required: If the YTM on these bonds is 9.4 percent, what is the current bond price?
2) The Timberlake-Jackson Wardrobe Co. has 10.9 percent coupon bonds on the market with seven years left to maturity. The bonds make annual payments.
If the bond currently sells for $1,117.33, what is its YTM?
3)
Merton Enterprises has bonds on the market making annual payments, with 18 years to maturity, and selling for $965. At this price, the bonds yield 7.7 percent.
What must the coupon rate be on Merton
Required:If the bond currently sells for $1,117.33, what is its YTM?
3)
Merton Enterprises has bonds on the market making annual payments, with 18 years to maturity, and selling for $965. At this price, the bonds yield 7.7 percent.
Required:What must the coupon rate be on Merton
Explanation / Answer
1] Assume that face value of bond= 100
Price of bond = 7.4*(1-1.094^-6)/0.094 + 100/1.094^6 = 91.13 or 91.13% of face value
2] Let YTM = r%
1117.33 = 109*(1-(1+r)^-7)/r + 1000/(1+r)^7
r= 8.6%
3] Let coupon rate= c%
965 = c*1000*(1-1.077^-18)/0.077 + 1000/(1.077)^18
c=7.33%
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