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chap 7 - Chapter 7 Bonds and Their Valuation Answers and...

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Answers and Solutions: 7 - 1 Chapter 7 Bonds and Their Valuation
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7-1 With your financial calculator, enter the following: N = 10; I = YTM = 9%; PMT = 0.08 × 1,000 = 80; FV = 1000; PV = V B = ? PV = $935.82. PV = (PMT*PVIFA 9%, 10 ) + (FV*PVIF 9%, 10 ) = 80*6.4177 + 1000*.4224 = $935.82 7-2 With your financial calculator, enter the following to find YTM: N = 10 × 2 = 20; PV = -1100; PMT = 0.08/2 × 1,000 = 40; FV = 1000; I = YTM = ? YTM = 3.31% × 2 = 6.62%. With your financial calculator, enter the following to find YTC: N = 5 × 2 = 10; PV = -1100; PMT = 0.08/2 × 1,000 = 40; FV = 1050; I = YTC = ? YTC = 3.24% × 2 = 6.49%. 7-3 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 = 1000. With a financial calculator, solve for PV = $1,028.60. 7-4 V B = $985; M = $1,000; Int = 0.07 × $1,000 = $70. a. Current yield = Annual interest/Current price of bond = $70/$985.00 = 7.11%. b. N = 10; PV = -985; PMT = 70; FV = 1000; YTM = ? Solve for I = YTM = 7.2157% 7.22%. c. N = 7; I = 7.2157; PMT = 70; FV = 1000; PV = ? Solve for V B = PV = $988.46. 7-5 a. 1. 5%: Bond L: Input N = 15, I = 5, PMT = 100, FV = 1000, PV = ?, PV = $1,518.98. Bond S: Change N = 1, PV = ? PV = $1,047.62. Answers and Solutions: 7 - 2 SOLUTIONS TO END-OF-CHAPTER PROBLEMS
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2. 8%: Bond L: From Bond S inputs, change N = 15 and I = 8, PV = ?, PV = $1,171.19.
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