Hi, please answer these questions it will be appreciated :) Thanks! Quantitative

Question

Hi, please answer these questions it will be appreciated :) Thanks!

Quantitative Problem:

A.) Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 8.4%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.

B.) Potter Industries has a bond issue outstanding with a 6% coupon rate with semiannual payments of $30, and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 8.4%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.

C.) Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 9% with semiannual payments of $45, and a par value of $1,000. The price of each bond in the issue is $1,180.00. The bond issue is callable in 5 years at a call price of $1,090. What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations. What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations.

Explanation / Answer

Part A)

The value of bond can be calculated with the use of Present Value (PV) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = Interest Rate, Nper = Period, PMT = Coupon Payment and FV = Face Value of Bond.

________

Here, Rate = 8.4%, Nper = 10, PMT = 1,000*6% = $60 and FV = $1,000

Using these values in the above function/formula for PV, we get,

Value of Bond = PV(8.4%,10,60,1000) = $841.82

________

Part B)

The value of bond can be calculated with the use of Present Value (PV) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = Interest Rate, Nper = Period, PMT = Coupon Payment and FV = Face Value of Bond.

________

Here, Rate = 8.4%/2 = 4.2%, Nper = 10*2 = 20, PMT = 1,000*6% = 60*1/2 = $30 and FV = $1,000 [we use 2 since the bond is semi-annual]

Using these values in the above function/formula for PV, we get,

Value of Bond = PV(4.2%,20,30,1000) = $839.77 (answer)

________

Part C)

The yield to maturity/yield to call can be calculated with the use of Rate function/formula of EXCEL/Financial Calculator. The function/formula of Rate is Rate(Nper,PMT,-PV,FV) where Nper = Period, PMT = Coupon Payment, PV = Bond Price and FV = Face Value/Call Price.

________

Nominal Yield to Maturity

Here, Nper = 15*2 = 30, PMT = 1,000*9%*1/2 = $45, PV = $1,180 and FV = $1,000 [we use 2 since the bond is semi-annual]

Using these values in the above formula for Rate, we get,

Nominal Yield to Maturity = Rate(30,45,-1180,1000)*2 = 7.04%

________

Nominal Yield to Call

Here, Nper = 5*2 = 10, PMT = 1,000*9%*1/2 = $45, PV = $1,180 and FV = $1,090 [we use 2 since the bond is semi-annual]

Using these values in the above formula for Rate, we get,

Nominal Yield to Call = Rate(10,45,-1180,1090)*2 = 6.31%

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.