Save Question 4 (7 points) Calculate the current price of a $1,000 par value bon

Question

Save Question 4 (7 points) Calculate the current price of a $1,000 par value bond that has a coupon rate of 16 percent, pays coupon interest annually, has 16 years remaining to maturity, and has a current yield to maturity (discount rate) of 9 percent. (Round your answer to 2 decimal places and record without dollar sign or commas). Your Answer: Answer Save Question 5 (7 points) Compute the price of a 5,211 par value, 13 percent coupon consol, or perpetual bond (i.e, coupon interest payment is a perpetuity), assuming that the yield to maturity on the bond is 9 percent. (Round your answer to 2 decimal do

Explanation / Answer

Question 4

Par Value = 1000, Coupon Rate = 16%, YTM = 9%, Maturity period = 16 years

Price of a Bond = PV of all coupons @ YTM + PV of Redemption of Par Value @ YTM

PV of all coupons can be calculated using PV of Annuity formula:

PV = C * ((1-1/(1+r)T)/r) where C = Annual payment, r = Discount Rate, T = Number of periods

Here, C = 1000 * 16% = 160, r = 9% or 0.09 & T = 16

So, PV of all coupons = 160 * ((1-1/(1+0.09)16)/0.09) = 1330.01

PV of Redemption of Par value = 1000/(1+0.09)16 = 251.87

So, Price of Bond = 1330.01 + 251.87 = 1581.88

Question 5

Par Value = 5211, Coupon Rate = 13%, YTM = 9%

Price of a perpetuity can be calculated as:

PV = C/r where C = periodic payment, r = Discount Rate

Here, C = 5211 * 13% = 677.43 and r = 9%

So, Price = 677.43/9% = 7527

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