Madsen Motors\'s bonds have 23 years remaining to maturity. Interest is paid ann
ID: 2792680 • Letter: M
Question
Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 90, and the yield to maturity is 1 190. What is the bond's current market price A bond has a $1,000 par value, 12 years to maturity, and an 8% annual coupon. It sells for 980. What is its yield to maturity? Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% yield to maturity. What is the bond's price? Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. What is the yield to maturity at a current market price of $8652 What is the yield to maturity at a current market price of $1,166 1. 2, LIc 3. 4.Explanation / Answer
Answer for question no.1:
Years to maturity =23 years.=nper
Interest frequency= Yearly.
Coupon payment=9%*1000 =$90=pmt
Par value=$1,000= nper
Given YTM=11%.
Current bond price is nothing but the present value of coupon payments and maturity proceeds discounted at YTM.
Therefore current price can be determined by using PV function of excel ie.,PV(rate,nper,pmt,[fv],[type])
=PV(11%,23, -90,,0)+PV(11%,23,-1000,,0)
=$834.67
Answer for question no.2:
Par value=$1000.=FV
Years to maturity=12.
Coupon rate=8%.
Coupon =8%*1000=$80=pmt
Current market price=$980.=FV
YTM is the rate at which if discounted the coupon payments and maturity proceeds equal the market price.
By using the rate function of excel YTM can be calculated:
=Rate(nper,pmt,pv,[fv],[type])
=RATE(12,80,-980,1000,0).
=8.27%.
Answer for question no.3:
Par value of the bond=$1,000=fv.
Coupon rate=8%.
Semi annual coupon payment=4%*1000=$0=pmt.
Years to maturity=14 years.
As it is semi annual coupon nper=14*2=28.
YTM=11%
As it is semi annual coupon paying bond rate to be used to discount=11%/2
=5.5%.=rate.
Current bond price is nothing but the present value of coupon payments and maturity proceeds discounted at YTM.
Therefore current price can be determined by using PV function of excel ie.,PV(rate,nper,pmt,[fv],[type])
=PV(5.5%,28, -40,,0)+PV(5.5%,28,-1000,,0)
=$788.
Answer for question no.4:
Years to maturity=6=nper
Annual coupon payment.
Coupon pament=10%*1000=100=pmt.
Par value of the bond=$1,000 =FV.
Current market price=$865
YTM is the rate at which if discounted the coupon payments and maturity proceeds equal the market price.
By using the rate function of excel YTM can be calculated:
=Rate(nper,pmt,pv,[fv],[type])
=RATE(6,100,-865,1000,0).
=13.42%.
YTM at market price of $1,166:
=Rate(nper,pmt,pv,[fv],[type])
=RATE(6,100,-1166,1000,0).
=6.56%.
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