Ch.7 Problem Solutions

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

This preview shows pages 1–8. Sign up to view the full content.

CHAPTER 7 7-1 BOND VALUATION Callaghan 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 10 9% . . . 80 80 80 80 PV = ? FV = 1,000 ( 29 ( 29 ( 29 ( 29 N d N d d d B k M k INT k INT k INT V value s Bond + + + + + + + + = = 1 1 ... 1 1 ' 2 1 ( 29 ( 29 = + + + = N t N d t d k M k INT 1 1 1 ( 29 ( 29 ( 29 ( 29 10 10 2 1 09 . 1 1000 09 . 1 80 ... 09 . 1 80 09 . 1 80 ' + + + + + + + + = = B V value s Bond ( 29 ( 29 = + + + = = 10 1 10 09 . 1 1000 09 . 1 80 ' t t B V value s Bond With your financial calculator, enter the following: N = 10 I = YTM = 9% PMT = 0.08 x 1,000 = 80 FV = 1000 PV = V B = ? PV = \$935.82. 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2
3

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
7-2 YIELD TO MATURITY AND CALL Thatcher 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 the bonds is \$1,100. The bonds are callable in 5 years at a call price of \$1,050 . What is the yield to maturity? What is the yield to call? _______________________________________________ (a) 0 1 2 3 20 i=? . . . 40 40 40 40 PV= 1,100 FV = 1,000 ( 29 ( 29 ( 29 ( 29 ( 29 20 20 3 2 1 1 1000 1 40 ... 1 40 1 40 1 40 ' d d d d d B k k k k k V value s Bond + + + + + + + + + + = = ( 29 ( 29 = + + + = = 20 1 20 1 1000 1 40 ' t d t d B k k V value s Bond With your financial calculator, enter the following to find YTM: N = 10 x 2 = 20 PV = -1100 PMT = 0.08/2 x 1,000 = 40 FV = 1,000 I = YTM = ? YTM = 3.31% x 2 = 6.62% 4
(b) 0 1 2 3 10 i=? . . . 40 40 40 40 PV= 1,100 FV = 1,050 ( 29 ( 29 = + + + = = N t N d t d B k ice Call k INT V value s Bond 1 1 Pr 1 ' ( 29 ( 29 = + + + = = 10 1 10 1 1050 1 40 ' t d t d B k k V value s Bond With your financial calculator, enter the following to find YTC: N = 5 x 2 = 10 PV = -1100 PMT = 0.08/2 x 1,000 = 40 FV = 1050 I = YTC = ? YTC = 3.24% x 2 = 6.49% 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
7-3 BOND VALUATION Nungesser 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 16 i=4.25 . . . 40 40 40 40 PV= ? FV = 1,000 ( 29 ( 29 ( 29 ( 29 16 16 2 1 0425 . 1 1000 0425 . 1 45 0425 . 1 45 0425 . 1 45 ' + + + + + + + = = B V value s Bond ( 29 ( 29 = + + + = = 16 1 16 0425 . 1 1000 0425 . 1 45 ' t t B V value s Bond The problem asks you to find the price of a bond, given the following facts: N = 16 I = 8.5/2 = 4.25 PMT = 45 FV = 1,000 With a financial calculator, solve for PV = \$1,028.60 6
7-4 CURRENT YIELD AND YIELD TO MATURITY A 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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

This homework help was uploaded on 04/15/2008 for the course FIN 321 taught by Professor Kelley during the Spring '08 term at Loyola Maryland.

Page1 / 27

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

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online