PS3_Solution

PS3_Solution - PS3_Solution Chapter 5 (1) Coupon rate = 8%...

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PS3_Solution Chapter 5 (1) Coupon rate = 8% => coupon payment = 80. r d = 9% = yield to maturity. With your financial calculator, enter the following: N = 10; I = YTM = 9%; PMT = 0.08 × 1,000 = 80; FV = 1000; PV = ? PV = $935.82. Alternatively, P=80/(1+9%)+80/((1+9%))+. ..+80/((1+9%)^10)+1000/((1+9%)^10) = $80((1- 1/1.09 10 )/0.09) + $1,000(1/1.09 10 ) = $513.42 + $422.40 = $935.82. (2) a . V B = ) r + (1 M + ) r + (1 INT N d t d N 1 = t = PMT((1- 1/(1+r d n ))/r d ) + FV(1/(1+r d ) n ). M = $1,000. INT = 0.09($1,000) = $90. i. $829= $90((1- 1/(1+r d 4 ))/rd) + $1,000(1/(1+r d ) 4 ). The YTM can be found by trial-and-error. If the YTM was 9 percent, the bond value would be its maturity value (face value, 1000). Since the bond sells at a discount, the YTM must be greater than 9 percent. Let's try 10 percent. At YTM=10%, V B = $968.29. $968.29 > $829.00; therefore, the bond's YTM is greater than 10 percent. Try 15 percent. At 15%, V
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This homework help was uploaded on 04/18/2008 for the course FIN 332 taught by Professor Dasilva during the Spring '08 term at CSU Fullerton.

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PS3_Solution - PS3_Solution Chapter 5 (1) Coupon rate = 8%...

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