You are called in as a financial analyst to appraise the bonds of Olsen’s Clothi
ID: 2743634 • Letter: Y
Question
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 9 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 25 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the price of the bonds based on semiannual analysis. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond price $
b. With 20 years to maturity, if yield to maturity goes down substantially to 10 percent, what will be the new price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) New bond price $
% 67 44 96 98 32 88 59 39 26 17 12 08 05 03 02 02 01 01 4 1000000000000000000000000 m $10 250 195 33 006 des des des 25 01 01 009 006 005 003 002 002 001 0000 5% zat sag 400 201 220 105 12 001 007 7 02 000 01 011 8 006 005 003 002 001 00 0% 700 92 55 50 200 201 59 23 004 73 56 uag 33 125 120 15 12 009 007 005 001 0 0 0 217077 75432211000000000 % 012 82 72 TOB 150 sse $12 400 42 998 350 220 200 202 201 202 194 78 110 75 002 013 83842 EST 194 ras 001 600 ses sad 500 ACS 400 997 998 sad 15 202 210 250 202 15 140 000 des ozi 052 3222221 5238 45816041 2 7' 98 420 2221111 00275 7287792741012 51276 5433 111100000000000 100000000000000000000000 7% ess 750 ezi $50 360 agg-200 78 52 130 111 006 001 000 ose osi 013 220 009 002 100000000000000000000000 4 777766 55554443 5583 5443 1000000000000000000000000 739 587 66543 0385 8051 1000000000000000000000000 5333 511410151877682 84200 3086421 665443 1000000000000000000000000 123456789012345678905 12345678901234567890500Explanation / Answer
Answer a.
Semi-annual Coupon = $45
Number of Coupon Payment = 50
Semi-annual YTM = 5%
Price of Bond = 45*PVIFA(5%, 50) + 1,000*PVIF(5%, 50)
Price of Bond = 45*18.256 + 1,000*0.087
Price of Bond = $908.52
Answer b.
Semi-annual Coupon = $45
Number of Coupon Payment = 40
Semi-annual YTM = 5%
Price of Bond = 45*PVIFA(5%, 40) + 1,000*PVIF(5%, 40)
Price of Bond = 45*17.159 + 1,000*0.142
Price of Bond = $914.155
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