EFM-07problem

# EFM-07problem - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17...

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

07problem 3/22/2010 7:10 12/14/2005 Chapter 7. Solution to End-of-Chapter Comprehensive/Spreadsheet Problem Problem 7-21 Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Each bond has a yield to maturity of 9 percent. a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, discount, or at par. Bond A is selling at a discount because its coupon rate (7%) is less than the going interest rate (YTM = 9%). Bond B is selling at par because its coupon rate (9%) is equal to the going interest rate (YTM = 9%). Bond C is selling at a premium because its coupon rate (11%) is greater than the going interest rate (YTM = 9%). Work parts b through e with a spreadsheet. You can also work these parts with a calculator to check your spreadsheet answers if you aren't confident of your spreadsheet solution. You must then go on to work part g with the spreadsheet. b. Calculate the price of each of the three bonds. Basic Input Data: Bond A Bond B Bond C Years to maturity: 12 12 12 Periods per year: 1 1 1 Periods to maturity: 12 12 12 Coupon rate: 7% 9% 11% Par value: \$1,000 \$1,000 \$1,000 Periodic payment: \$70 \$90 \$110 Yield to maturity: 9% 9% 9% \$856.79 \$1,000.00 \$1,143.21 c. Calculate the current yield for each of the three bonds. Current yield = Annual coupon / Price Bond A Bond B Bond C Current yield = 8.17% 9.00% 9.62% d. If the yield to maturity for each bond remains at 9 percent, what will be the price of each bond 1 year from now? What is the expected capital gains yield for each bond?

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 note was uploaded on 03/21/2010 for the course BUSINESS AB102 taught by Professor Woo during the Spring '10 term at Nanzan.

### Page1 / 5

EFM-07problem - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17...

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

View Full Document
Ask a homework question - tutors are online