1.A 30-year, $1,000 par value bond has a 9.5% annual payment coupon. The bond cu

Question

1.A 30-year, $1,000 par value bond has a 9.5% annual payment coupon. The bond currently sells for $875. If the yield to maturity remains at its current rate, what will the price be 9 years from now?
2.Knapp Bros, LLC is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 7 years at a 7% call premium, how would this affect their required rate of return?

Step a:

Calculate the Bond Yield if held to Maturity YTM = #NUM!
Number of Payments N = 1
Present Value of the Bond (the price the bond should sell for) PV = $875.00
Coupon Payments (Annual Coupon Interest Rate x Bond Par Value) PMT = $95.00
Par Value if Bond is held to Maturity par value = $1,000.00
Annual Coupon Interest Rate I = 10.93%

Step b:

Find the Present Value of the Bond (the price the bond should sell for) PV = $0.00
Number of Payments Nine Years from Today N =
Future Value of the Bond if Held to Maturity FV =
Coupon Payments PMT =
Yield to Maturity from Step 1 YTM =


Problem 2

Assumptions (not given in the exercise):
Par Value if Bond is held to Maturity FV = $1,000.00
Annual Coupon Interest Rate I = 5.00%
Yield to Maturity YTM = 6.50%

Coupon Payments (Coupon interest x Bond Par Value) PMT = $0.00
Years to Maturity N = 1
Years to Call YTC = 1
Call Premium % CP = 0.00%

Present Value of the Bond (the price the bond should sell for) -$938.97

Bond Yield Calculations
Current Yield 0.00%
Yield to Maturity 6.50%
Yield to Call 6.50%

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Explanation / Answer

Knapp Bros, LLC is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 7 years at a 7% call premium, how would this affect their required rate of return?

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