38) Assume that today\'s date is August 15, 2010 and that the Rite Aid Bond is a

Question

38) Assume that today's date is August 15, 2010 and that the Rite Aid Bond is an annual-coupon bond. Describe what each of the following terms mean and how each value was determined if appropriate. Par value of the bond is $5,000.

Company:        Price           Coupon Rate                  MaturityDate          
Rite Aid         84.00              6.875%                       8-15-2015         

YTM       Current Yield           Rating   

???                ???                      D

In your answer you should also answer the following questions: a) Calculate the price of the bond in $$? b) Calculate annual coupon interest payments. c) Calculate yield to maturity of the bond. d) Calculate current yield on the bond.

Explanation / Answer

a)price of the bond = 84%*5,000= $4200

b)annual coupon interest payments = 6.875%*5000= 343.75

c)Let yield to maturity of the bond = r

4200 = 343.75*(1-1/(1+r)^5)/r + 5000/(1+r)^5

yield to maturity, r= 11.23%

d)current yield on the bond = 343.75/4200= 8.18%

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