Ch 7 Bonds
Bond Valuation:
Callaghan bonds have 10 yrs remaining to maturity.
Interest is paid annually, they have a $1000 par value, the coupon interest
rate is 8% and the yield to maturity is 9%. What is the bond price?
A: N = 10; I/YR = YTM = 9%; PMT = 0.08
1,000 = 80; FV = 1000; PV = VB = ?
PV = $935.82.
Yield to maturity and future price
: A bond has a $1000 par value, 10 yrs to maturity and a 7% annual coupon and sells for $985.
a. What is the ield to maturity (YTM)?
b. Assume the YTM remains constant for the nest 3 yrs.
What will the price for 3 yrs from today?
a.
N = 10; PV = 985; PMT = 70; FV = 1000; YTM = ?
Solve for I/YR = YTM = 7.2157%
≈
7.22%.
b.
N = 7; I/YR = 7.2157; PMT = 70; FV = 1000; PV = ?
Solve for V
B
= PV = $988.46.
Bond valuation
: Nung Corp. outstanding bonds have a $1000 par value a 9% semiannual coupon, 8 yrs to maturity, and a 8.5% YTM. What is
the bond price?
The problem asks you to find the price of a bond, given the following facts:
N = 2
×
8 = 16; I/YR = 8.5/2 = 4.25; PMT = 45; FV = 1000.
With a financial calculator, solve for PV = $1,028.60.
YIELD TO MATURITY
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 Spring '11
 FB
 Interest, Interest Rate, Valuation, YTM

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