1.MegaCorp just issued a five-year, $20,000 bond with a coupon rate of j 2 =4.02
ID: 2798419 • Letter: 1
Question
1.MegaCorp just issued a five-year, $20,000 bond with a coupon rate of j2=4.02%. What price would an investor be willing to pay for the bond if they wanted a return on their investment of j2=8%?
2.A 10 year, $5,000 bond with a coupon rate of j2=5% is priced at $5,215. What yield to maturity (j2) will an investor realize if they purchase the bond? Round your answer to 2 decimal places and express as a percentage. Use either trial and error or interpolation.
Could you please help me to do this with ba ii plus calculator
Explanation / Answer
1)assuming that thebond is redeemable at par
16821.8
2)Face value (F) = $5000
Coupon C = 5% i.e 250
Price P = 5215
n = 10 years
Approx YTM = C + (F-P)/n /(F + P)/2 = (250 + (5000-5215)/10) /(5125 + 5000)/2
= (250 -2.15)/5107.5
= 247.85/5107.5 = 4.85 approx
Now calculate bond price @ 4% ytm and bond price at 5% ytm
For 1% change in ytm the bond price decreases by =551.715
that means the bond price to decrease by (5405.545-5215)= 190.545 the % change should be =190.545/551.715
=0.3454%
The ytm is 4 + 0.3454% = 4.3454%
To calculate YTM you have to calculate IRR
Draw a time line and label all cash inflows and outflows with the respective amounts. Display inflows as positive amounts, and outflows as negative amounts in parentheses.
Use the BAII plus professional calculator (or Excel) to calculate the IRR of the projected investment
Cashflow = 20000*4.02% Year Cashflow Pvf @ 8% Discccf 1 804 0.925926 744.4444 2 804 0.857339 689.3004 3 804 0.793832 638.2411 4 804 0.73503 590.964 5 804 0.680583 547.1889 5 20000 0.680583 13611.66 Bond price16821.8
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.