I don\'t feel like I\'m getting the right numbers here, any help appreciated. Th
ID: 2661189 • Letter: I
Question
I don't feel like I'm getting the right numbers here, any help appreciated. Thanks
1. You are interested in investing in a five-year bond that pays a 7.41 percent coupon with interest to be received semiannually. Your required rate of return is 10.14 percent. What is the most you would be willing to pay for this bond?
2.Pullman Corp issued 10-year bonds four years ago with a coupon rate of 7.69 percent. At the time of issue, the bonds sold at par. Today bonds of similar risk and maturity must pay an annual coupon of 6.68 percent to sell at par value. Assuming semiannual coupon payments, what will be the current market price of the firm
Explanation / Answer
1) Amount most likely to be paid Semiannualy coupon Coupon amount = 7.41/2 3.71 Amount to be paid = PV of all coupons discounted at 10.14% No of coupons Coupon Amount PV @5.07% [10.14/2] 1 3.7 3.52 2 3.7 3.35 3 3.7 3.19 4 3.7 3.04 5 3.7 2.89 6 3.7 2.75 7 3.7 2.62 8 3.7 2.49 9 3.7 2.37 10 103.7 63.24 Amount to be paid = 89.45709246 [assuming the price to be 100] 2) Current market priceof the bonds : Time left to maturity : 6 years Coupon amount 3.85 Market price would be PV of all coupons discounted at 6.68% No of coupons Coupon Amount PV @ 3.34% 6.68/2% 1 3.85 3.73 2 3.85 3.61 3 3.85 3.49 4 3.85 3.38 5 3.85 3.27 6 3.85 3.16 7 3.85 3.06 8 3.85 2.96 9 3.85 2.86 10 3.85 2.77 11 3.85 2.68 12 103.85 70.01 Current market price 104.98 [assuming the price to be 100] 3 ) Interest is compunded semi annually Current yield = 11.05% Haif year yield = 11.05/2 5.5250 Value of the bond = 1000/1.05525^20 341.11 4) Current price of ZCB = 351.7 Price of ZCB = [1000/(1+yield)^7 351.7 = [1000/(1+yield)^7 solving the above equation weget yield = 16.10%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.