Problem 21.34 The Boeing Company has two different debt issues, both maturing fo
ID: 2719213 • Letter: P
Question
Problem 21.34
The Boeing Company has two different debt issues, both maturing four years from now. The domestic bond issue pays semiannual coupons and has a coupon rate of 4.80 percent. The current price on the bond is $967.48. The Eurobond issue is priced at $959.91 and pays an annual coupon of 4.95 percent.
What is the yield to maturity for domestic bond? (Round intermediate calculation to 5 decimal places, e.g. 15.25000 and final answer to 2 decimal places e.g. 17.54%.)
Effective Annual Yield ______%
What is the yield to maturity for Euro bond? (Round answer to 2 decimal places e.g. 17.54%.)
Effective Annual Yield ______%
PLEASE SHOW YOUR WORK....
Explanation / Answer
Domestic bonds:
Coupon rate =4.80%
Face value of the bond = $1,000.
Semi annual coupon =($1,000 *4.80%)/2
=$24.
Years to maturity = 4 years.
Current price of the bond =$967.48.
Simplified formula for YTM=(C+(F-P)/n)/(F+P)/2
=($24+($1,000 - $967.48)/4)/($1,000+$967.48)
=3.266%
Annaulized return = (1+rate)n-1
=(1+.0326)2 -1
=6.64%.
Euro bond:
Coupon rate =4.95%
Face value of the bond = $1,000.
Current price =$959.91
Coupon=49.5
Simplified formula for YTM=(C+(F-P)/n)/(F+P)/2
=($49.5+($1,000 -$959.91)/4)/($1000+$959.91)/2
=6.074% approximately
Note:The simplified formula gives an approximate value.
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