It is July1, 2016 and you have just begun work with Numberz Financial Services.
ID: 2738470 • Letter: I
Question
It is July1, 2016 and you have just begun work with Numberz Financial Services. A client has seen the following price information about corporate bonds and has asked:
Company
(Ticker)
Coupon
Maturity
Last
Price
Last
Yield
Change
AMR
7.625
April. 1, 2033
102.76
??????
-2.5
BCD
0.000
July, 2029
525.00
??????
+3.23
Note that all bond yields above are compoundedsemiannually.
Supply the missing information for both bonds.
What was yesterday’s price for both bonds?
What is the implicit interest of BCD bond, in dollars, for year 2000?
Company
(Ticker)
Coupon
Maturity
Last
Price
Last
Yield
Change
AMR
7.625
April. 1, 2033
102.76
??????
-2.5
BCD
0.000
July, 2029
525.00
??????
+3.23
Explanation / Answer
AMR bond:
last Yield(current yield)= coupon payment/price of bond
=(7.625%/2*100)/102.76
=3.71%
For BCd bond:
does not exist for zero coupon bond
Yesterday price:
AMR:
-2.5%=(102.76-x)/x
x=105.39
BCD bond:
3.23%=(525-x)/x
=508.57
Implicit interest=(face value/present value)^(1/n)-1
=[(1000/525)^(1/13)]-1
=5.08%
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