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Unformatted text preview: Solutions to EndofChapter Problems 71 With your financial calculator, enter the following: N = 10; I/YR = YTM = 9%; PMT = 0.08 × 1,000 = 80; FV = 1000; PV = V B = ? PV = $935.82. 72 V B = $985; M = $1,000; Int = 0.07 × $1,000 = $70. 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. 73 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. 74 With your financial calculator, enter the following to find YTM: N = 10 × 2 = 20; PV = 1100; PMT = 0.08/2 × 1,000 = 40; FV = 1000; I/YR = YTM = ? YTM = 3.31% × 2 = 6.62%. With your financial calculator, enter the following to find YTC: N = 5 × 2 = 10; PV = 1100; PMT = 0.08/2 × 1,000 = 40; FV = 1050; I/YR = YTC = ? YTC = 3.24% × 2 = 6.49%. Since the YTC is less than the YTM, investors would expect the bonds to be called and to earn the YTC. 75 a. 1. 5%: Bond L: Input N = 15, I/YR = 5, PMT = 100, FV = 1000, PV = ?, PV = $1,518.98. Bond S: Change N = 1, PV = ? PV = $1,047.62. 2. 8%: Bond L: From Bond S inputs, change N = 15 and I/YR = 8, PV = ?, PV = $1,171.19. Chapter 7: Bonds and Their Valuation Answers and Solutions 1 Bond S: Change N = 1, PV = ? PV = $1,018.52. 3. 12%: Bond L: From Bond S inputs, change N = 15 and I/YR = 12, PV = ?, PV = $863.78. Bond S: Change N = 1, PV = ? PV = $982.14. b. Think about a bond that matures in one month. Its present value is influenced primarily by the maturity value, which will be received in only one month. Even if interest rates double, the price of the bond will still be close to $1,000. A 1year bond’s value would fluctuate more than the one month bond’s value because of the difference in the timing of receipts. However, its value would still be fairly close to $1,000 even if interest rates doubled. A longterm bond paying semiannual coupons, on the other hand, will be dominated by distant receipts, receipts that are multiplied by...
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This note was uploaded on 12/09/2011 for the course FIN 315 taught by Professor Hunsader during the Spring '11 term at S. Alabama.
 Spring '11
 Hunsader

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