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Unformatted text preview: Pages 210 - 211 5.1 Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually...? 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 market price of these bonds? P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n 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 In this problem F = 1000. And, since we are not given the maturity value, we can assume that it is the same as the par value. Therefore, C = 1000. r = .08 i = .09 n = 12 Plug the numbers into the equation: 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39 5.2 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? Time to maturity = 12 years Par value = $1,000 Coupon rate = 10% Price of the bond = $850 Value of the bond=t=1nPar value*Coupon rate1+YTMt+Par value1+YTMn Given: | | | Par value | $1,000 | | Coupon rate | 10% | | Time to maturity | 12 | years |...
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This note was uploaded on 01/31/2012 for the course FINANCIAL f1515 taught by Professor Karylfriedman during the Spring '11 term at Keller Graduate School of Management.
- Spring '11