Answer for Number 23

Answer for Number 23 - 1. A newly-issued corporate bond has...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Bond Price: Calculating Price of bond To calculate the price of the bond we need to calculate / read from tables the values of PVIF= Present Value Interest Factor PVIFA= Present Value Interest Factor for an Annuity Price of bond= PVIF * Redemption value + PVIFA * interest payment per period PVIFA( n, r%)= =[1-1/(1+r%)^n]/r% PVIF( n, r%)= =1/(1+r%)^n Data No of years to maturity= 20 Coupon rate= 8.00% Face value= $1,000 Frequency = S Semi annual coupon payments Discount rate annually= 7.00% (Yield to maturity) Redemption value = Face Value= $1,000 Calculation of bond price: Interest payment per year= $80.00 =8.% x 1000 Interest payment per period= $40.00 =80/2 No of Periods =n= 40 =2x20 Discount rate per period = r = 3.50% =7.%/2 PVIF (40 periods, 3.5% rate)= 0.25 PVIFA (40 periods , 3.5% rate)= 21.36 PVIFA X Interest Payment= $854.20 =21.355072 x 40 PVIF X Redemption value= $252.57 =0.252572 x 1000 Price= $1,106.77 =854.2+252.57 Answer: Price= $1,106.77 b. What is the bond’s current yield (0.5 point)?
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

Answer for Number 23 - 1. A newly-issued corporate bond has...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online