Ch.7 Problem Solutions - CHAPTER 7 7-1 BOND VALUATION Callaghan Motors bonds have 10 years remaining to maturity Interest is paid annually the bonds

Ch.7 Problem Solutions - CHAPTER 7 7-1 BOND VALUATION...

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CHAPTER 77-1BOND VALUATIONCallaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8 percent. The bonds have a yield to maturity of 9 percent. WHAT IS THE CURRENT MARKET PRICE OF THESE BONDS?0 1 2 3 109%. . .80 80 80 80PV = ? FV = 1,000NdNdddBkMkINTkINTkINTVvaluesBond11...11'21NtNdtdkMkINT11110102109.1100009.180...09.18009.180'BVvaluesBond1011009.1100009.180'ttBVvaluesBondWith your financial calculator, enter the following:N=10I=YTM=9%PMT=0.08 x 1,000 =80FV=1000PV=VB=?PV=$935.82.1
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7-2YIELD TOMATURITY ANDCALLThatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8 percent coupon rate, paid semiannually. The price of thebonds is $1,100. The bonds are callable in 5 yearsat a call price of $1,050. What is the yield to maturity? What is the yield to call?_______________________________________________(a)0 1 2 3 20i=?. . .40 40 40 40PV= 1,100 FV = 1,000202032111000140...140140140'dddddBkkkkkVvaluesBond2012011000140'tdtdBkkVvaluesBondWith your financial calculator, enter the following to find YTM:N=10 x 2=20PV=-1100PMT=0.08/2 x 1,000 =40FV=1,000I=YTM=?YTM=3.31%x 2=6.62%4
(b)0 1 2 3 10i=?. . .40 40 40 40PV= 1,100 FV = 1,050NtNdtdBkiceCallkINTVvaluesBond11Pr1'1011011050140'tdtdBkkVvaluesBondWith your financial calculator, enter the following to find YTC:N=5 x 2=10PV=-1100PMT=0.08/2 x 1,000 =40FV=1050I=YTC=?YTC=3.24% x 2=6.49%5
7-3BOND VALUATIONNungesser Corporation has issued bonds that have a 9 percent coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5 percent. What is the price of the bonds?_______________________________________________0 1 2 3 16i=4.25. . .40 40 40 40PV= ? FV = 1,0001616210425.110000425.1450425.1450425.145'BVvaluesBond161160425.110000425.145'ttBVvaluesBondThe problem asks you to find the price of a bond, given the following facts:N=16I=8.5/2=4.25PMT=45FV=1,000With a financial calculator, solve for PV = $1,028.606
7-4CURRENT YIELDAND YIELD TOMATURITYA bond that matures in 10 years sells for $985. The bond has a face value of $1,000 and a 7 percent annual coupon.a.What is the bond’s current yield?b.What is the bond’s yield to maturity (YTM)?c.Assume that the yield to maturity remains constant for the next 3 years.

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