#4. Two years ago, Trans-Atlantic Airlines sold $250 million worth of bonds at $

Question

#4. Two years ago, Trans-Atlantic Airlines sold $250 million worth of bonds at $1,000 each. These semi-annual bonds had a maturity of 12 years and a coupon rate of 12.5%. Today these bonds are selling for $1,000. Determine the yield-to-maturity.

A. 13.24%

B. 5.59%

C. 13.72%

D. 10.84%

#5. A semi-annual pay bond is on the market with 10.5 years to maturity, YTM of 8% and a current price of $1,075. What must be the bond’s coupon rate?

A. 8.53%

B. 9.07%

C. 9.34%

D. 8.78%

Please show work, or calculator inputs.

Explanation / Answer

As per the rule, I can solve first question only.

For the Q4, all the options looks incorrect as both the par value and face value of the bond is equal and when they are equal, yield to maturity of the bond is equal to its coupon rate, therefore, YTM should be 12.50% but there is no option for that.

I am solving Question 5

Calculator inputs are:

PV = -1075

FV =1000

N=10.5x2=21

R = 8%/2

We first need to solve for pmt.

Pmt would be =45.346

Since, this is a semiannual bond, this pmt is semiannual coupon.

Annual coupon = 45.346 x2

                                = 90.69

Coupon rate = annual coupon/ FV

                                = 90.69/1000

                                =9.07%

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