Please show full work for me to understand. Thank you! Suppose Ford sold an issu

Question

Please show full work for me to understand. Thank you!

Suppose Ford sold an issue of bonds with a 5-year maturity, a $1,000 par value, a 12% coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 9%. At what price would the bonds sell? Answer: $1,227.20 a. b. Suppose that, two years after the bonds' issue, the going interest rate had risen to 13%. At what price would the bonds sell? Answer: $938.04 Today, the closing price of the bond is $783.58. What is the effective current yield? Answer: The effective annual current yield = 15.9% c.

Explanation / Answer

a. FV = 1000, rate = 4.5% PMT = 60 N = 13*2 = 26

use PV function in Excel

price of the bond = 1,227.20

b. replace above rate with 6.5%

price of bond = 938.04

c. effective annual current yield = (1 + 60/783.58)2 - 1 = 15.90%

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