1. You paid $1171 for a corporate bond that has a 10.81 percent coupon rate. Wha
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Question
1. You paid $1171 for a corporate bond that has a 10.81 percent coupon rate. What is the bond's current yield?
Round the answer to two decimal places in percentage form.
2.
What is the yield to maturity of a 12-year bond that pays a coupon rate of 7.97 percent per year, has a $1,000 par value, and is currently priced at $931? Assume annual coupon payments.
Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box).
You should use Excel or financial calculator.
3.
Black Water Corp. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 25 years and a yield to maturity of 11.55 percent, compounded annually. What is the current price of the bond?
Round the answer to two decimal places.
4.
What is the yield to call of a 30-year to maturity bond that pays a coupon rate of 11.98 percent per year, has a $1,000 par value, and is currently priced at $918? The bond can be called back in 7 years at a call price $1,089. Assume annual coupon payments.
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)
You should use Excel or financial calculator.
Explanation / Answer
Q. 2. Yield to maturity = Coupon + Pro-rated Discount / (Redemption price + Purchase price)/2
Coupon = 1000 * 7.97% = 79.7
Pro-rated discount = (1000 - 931) /12 = 5.75
(Redemption price + Purchase price)/2 = (1000 + 931) / 2 = 965.5
Yield to maturity =79.7 +5.75 / 965.5
= 85.45 / 965.5
= 8.85 %
Q . 3
Current price of Zero-Coupon bond = 1000 * Present value factor of 25TH Year @ 11.55 %
= 1000 * 0.6505
=$ 65.05
Q. 1. Bond's current yield = 10.81% (As it is the annual interest payment divided by bond's price which would come equal to 10.81 % only)
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