FI515_Homework3_Russ Graziano

# FI515_Homework3_Russ Graziano - Problems(pp 210-211 5-1...

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Problems (pp. 210-211) 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? P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n, where F = par value C = maturity value r = coupon rate per coupon payment period i = effective interest rate per coupon payment period n = number of coupon payments remaining F = 1000. Since we are not given the maturity value, we can assume that it is the same as the par value. So, C = 1000. r = .08 i = .09 n = 12 The bond price is 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = \$928.39 5-2 YTM for Annual Payments Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annu- ally, 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? Given:

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FI515_Homework3_Russ Graziano - Problems(pp 210-211 5-1...

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