It is July 1, 2016 and you have just begun work with XYZ Financial Services. A c
ID: 2738167 • Letter: I
Question
It is July 1, 2016 and you have just begun work with XYZ Financial Services. A client has seen the following price information about corporate bonds in the Wall Street Journal and has asked:
Company
(Ticker)
Coupon
Maturity
Last
Price
Last
Yield
Change
AMR
7.625
Apr. 1, 2033
102.76
??????
-2.5
BCD
0.000
July 1, 2029
525.00
??????
+3.23
Note that all bond yields above are compounded semiannually.
a. Supply the missing information for both bonds.
b. What is the current yield of AMR bond?
c. What was yesterday’s price for both bonds?
c. What is the implicit interest of BCD bond, in dollars, for year 2000?
Please Show Work! I'm lost on this question!
Company
(Ticker)
Coupon
Maturity
Last
Price
Last
Yield
Change
AMR
7.625
Apr. 1, 2033
102.76
??????
-2.5
BCD
0.000
July 1, 2029
525.00
??????
+3.23
Explanation / Answer
a) Last Yield = Annual Coupon / Last Bond Price
AMR Company Bond = 7.625 / 102.76 = 0.0742 i.e., 7.42 %
BCD Company Bond = 0 / 525 = 0 %
b) Current Yield = Annual Coupon / Current Bond Price
Current Bond Price:-
AMR Company Bond = 102.76 - 2.5 = $ 100.26
BCD Company Bond = 525 + 3.23 = $ 528.23
Current Yield:-
AMR Company Bond = 7.625 / 100.26 = 0.0760 i.e., 7.60 %
BCD Company Bond = 0 / 528.23 = 0 %
c) Yesterdays' price for bonds:-
AMR Company Bond = 102.76 (Given in question)
BCD Company Bond = 525.00 (Given in question)
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