Buner Corporations outstanding bond has the following characteristics: Years to
ID: 2666328 • Letter: B
Question
Buner Corporations outstanding bond has the following characteristics:Years to maturity 6.0
Coupon rate of interest 8.0%
Face value 1,000
If investors require a rate of return equal to 12 percent on similar-risk bonds and interest is paid semiannually, what should be the market price of Buner's bond?
Intercontinental Baseball Manufactures (IBM) has an outstanding bond that matures in 10 years. The bond which pays $25 interest every six months ($50 per year), is currently selling for $598.55. What is the bond yields to maturity?
Explanation / Answer
1) Computing the Current value of the bond using excel sheet: According to the given information, Years to maturity = 6 Semi-annual periods = 6 * 2 = 12 Coupon rate = 8% Semi-annual coupon rate = 8% / 2 = 4% Face value = $1000 Yield = 12% Semi-annual coupon payment = Face value of the bond * Semi-annual coupon rate = $1000 * 4% = $40 Semi-annual yield = 12% / 2 = 6% Step1: Go to excel and click "insert" to insert the function. Step2: Select the "PV" function as we are finding the present value of the bond in this case. Step3: Enter the values as RAte = 6% ; Nper = 12;PMT = -40; FV = -1000 Step4: Click "OK" to get the desired value. The value comes to "$832.32" Therefore, the present value of the bond is $832 2) According to the given information, Years to maturity = 10 Semi-annual periods = 10 * 2 = 20 Face value = $1000 Semi-annual coupon payment = $25 Semi-annual yield = ? CAlculating the Yield using excel sheet: Step1: Go to excel and click "insert" to insert the function. Step2: Select the "Rate" function as we are finding the yield to maturity in this case. Step3:Enter the values as Nper = 20; PMT = -25; PV = 598.55; FV = -1000 Step4: Click "OK" to get the desired value. The value comes to "6.00%" Therefore, semi-annual yield is 6.0% Annual yield is (6% *2) = 12% According to the given information, Years to maturity = 10 Semi-annual periods = 10 * 2 = 20 Face value = $1000 Semi-annual coupon payment = $25 Semi-annual yield = ? CAlculating the Yield using excel sheet: Step1: Go to excel and click "insert" to insert the function. Step2: Select the "Rate" function as we are finding the yield to maturity in this case. Step3:Enter the values as Nper = 20; PMT = -25; PV = 598.55; FV = -1000 Step4: Click "OK" to get the desired value. The value comes to "6.00%" Therefore, semi-annual yield is 6.0% Annual yield is (6% *2) = 12%Related Questions
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