This preview shows pages 1–5. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Solutions to lecture problems bonds What is the value of a bond with a coupon rate of 7.4%, par value of $1000, 8 years until maturity, and YTM of 8.5% if coupons are paid annually with the next one due in one year? time 1 2 3 4 5 6 7 8 time 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 6 yrs 7 yrs 8 yrs CF cpn cpn cpn cpn cpn cpn cpn cpn + par CF 74 74 74 74 74 74 74 74 + 1000 N = 8 years 1 coupon per year = 8 I% = YTM # coupons per year = 8.5% 1 = 8.5% FV = 1,000 = par PMT = par coupon rate # coupons per year = 1000 7.4% 1 = 74 END mode Enter 8 8.5 74 1000 N I% PV PMT FV Solve for937.97 1 Solutions to lecture problems bonds What is the current yield of a bond with a coupon rate of 7.4%, par value of $1000, 8 years until maturity, and YTM of 8.5% if coupons are paid annually with the next one due in one year? The current yield equals the total value of all coupon payments promised by a bond over a year divided by the market value (or present value or price) of the bond. The total annual coupon payments made by a bond equal the coupon rate multiplied by par In this case, the coupon rate = 7.4% and par = $1,000, so coupons are .074 $1,000 = $74 per year The market value of the bond is $937.97 Current yield = $74 / $937.97 = .0789 = 7.89% 2 Solutions to lecture problems bonds What is the value of a bond with a coupon rate of 7.2%, par value of $1000, 12 years until maturity, and YTM of 6.6% if coupons are paid semiannually with the next one due in six months? time 1 2 3 4 5 23 24 time 0y6m 1y0m 1y6m 2y0m 2y6m 11y6 m 12y0m CF cpn cpn cpn cpn cpn cpn cpn + par CF 36 36 36 36 36 36 36 + 1000 N = 12 years 2 coupons per year = 24 I% = YTM # coupons per year = 6.6% 2 = 3.3% FV = 1,000 = par PMT = par coupon rate # coupons per year = 1000 7.2% 2 = 36 END mode Enter 24 3.3 36 1000 N I% PV PMT FV Solve for1,049.20 3 Solutions to lecture problems bonds What is the current yield of a bond with a coupon rate of 7.2%, par value of $1000, 12 years until maturity, and YTM of 6.6% if coupons are paid semiannually with the next one due in six months? The current yield equals the total value of all coupon payments promised by a bond over a year divided by the market value (or present value or price) of the bond....
View
Full
Document
 Spring '09
 MURRAY

Click to edit the document details