stockbondpracticesetsolutions

stockbondpracticesetsolutions - SOLUTIONS STOCK AND BOND...

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S OLUTIONS – S TOCK AND B OND P RACTICE SET 1. A coupon rate of 9% means the total annual payment is $90. a. Current price is the present value of all coupon payments plus present value of the face value. 65 . 431 068 . ) 068 . 1 ( 1 1 90 6 = - × = coupons PV ; 86 . 673 ) 068 . 1 ( 1000 6 = = value face PV Price = sum of present values = $1,105.51 N = 6, I = 6.8, PMT = 90, FV = 1000; Compute PV = $1,105.51 b. The timeline should look like this: N = 6 I = 6.8% 0 1 2 3 4 5 6 CPT PV 90 90 90 90 90 90 Price = 1,105.51 1000 2. These 20-year bonds were issued ten years ago, so they have ten years left to maturity. The yield to maturity can be found by solving for k d in the equation for the price of a bond. The price is the sum of the present value of the coupon payments plus the present value of the face value: ( 29 10 10 1 1000 ) 1 ( 1 1 75 40 . 1110 d d d k k k Price + + + - × = = N = 10, PV = 1110.40, PMT = 75, FV = 1000; Compute I = 6% 3. All three bonds make annual coupon payments of 60. They have the same YTM but different maturities. a. Compute the prices using the formula above, or your financial calculator: N PMT I FV CPT PV Bond A 1 60 3.8% 1000 1,021.19 Bond B 5 60 3.8% 1000 1,098.49 Bond C 15 60 3.8% 1000 1,248.06 b. Compute the prices using the formula above, or your financial calculator: 1
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N PMT FV PV at 5% PV at 10% Bond A 1 60 1000 1,009.52 963.63 Bond B 5 60 1000 1,043.29 848.36 Bond C 15 60 1000 1,103.79 695.75 c. Your graph of the prices of the three bonds at different yields should look something like this: $600 $700 $800 $900 $1,000 $1,100 $1,200 $1,300 0% 2% 4% 6% 8% 10% 12% Bond A Bond B Bond C d. Ethay elationshipray etweenbay imetay otay aturitymay andway ensitivitysay otay
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stockbondpracticesetsolutions - SOLUTIONS STOCK AND BOND...

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