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FI515_Homework3_EbonyMoore

# FI515_Homework3_EbonyMoore - 5-1 Bond Valuation with Annual...

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5-1 Bond Valuation with Annual Payments Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a \$1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? Using Excel Fx formula: Interest 0.09 # of years 12 PMT 80 =0.08*10 00 FV 1000 Formul a =PV(I,NPMT,FV ,0) PV (\$928.39) 5-2 YTM for Annual Payments Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a \$1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of \$850. What is their yield to maturity? Using Excel Fx Formula: # of years 12 PV -850 PMT 100 =0.1*100 0 FV 1000 YTM= R =RATE(N,PMT,PV,F V,0) YTM 12.48% 5-6 Maturity Risk Premium

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The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security?
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