An investor looks at today\'s yield to maturities in the Wall Street Journal for

Question

An investor looks at today's yield to maturities in the Wall Street Journal for debt with 10 year maturities. He observes the following: Rating AAA AAA YTM 4.43% 4.60% 4.75% 4.95% 5.15% Exxon Mobil (XON) has debt that is AAA rated. Suppose an investor wants to value Exxon bonds that will mature in 10-years. He sees one Exxon bond that pays a 7.00% annual coupon with a face value of $1,000. Bond prices are often quoted as a percentage of $100 face value increments. How would you quote your results from Part A? (express answer as a percentage, xx.xx%, of par) Answer Format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924) Enter Answer Here...

Explanation / Answer

We will use yield to maturity as 4.43%

Coupon payment = 0.07 * 1000 = 70

Price of bond = Coupon * [ 1 - 1 / ( 1 + r)n] / r + FV / ( 1 + r)n

Price of bond = 70 * [ 1 - 1 / ( 1 + 0.0443)10] 0.0443 + 1000 / ( 1 + 0.0443)10

Price of bond = 70 * 7.940022 + 648.257

Price of bond = $1,204.0585

Bond will be quoted as ( 1,204.0585 / 1000) * 100 = 120.41%

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