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F1515 Homework 3 - F1515 Homework 3 Tasha Smith 5-1 Bond...

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F1515 Homework 3 Tasha Smith 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? 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39 5-2 Yield to Maturity 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? Bond Yield Calculator Current Price = $850 Par Value = $1000 Coupon Rate = 10% Years to Maturity = 12 Years CALCULATION RESULT Current Yield = 11.765 Yield to Maturity = 12.48 5-6 Maturity Risk Premium 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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