FI515Homework3_janiceFernandez

# FI515Homework3_janiceFernandez - Problems Chapter 5 5-1...

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Problems Chapter 5 5-1. 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? Par Value (or) Face value of the bond = \$1,000 Interest Rate (or) Coupon Rate of the bond = 8% Yield to Maturity of the bond = 9% Number of years to Maturity of the bond = 12 years Bond Value = [Present Value of the coupons + Present value of the Face amount] Annual Coupon Rate of the bond = 8% Annual Coupon Payment of the bond = \$1,000 * 8% Annual Coupon Payment of the bond = \$80 Bond Value = \$80 * PVIFA (9%, 12) + \$1,000 * PVF (9%, 12) =PV (.09,12,,1000,0) Bond Value = \$80 * 7.1607 + \$1,000 * 0.3555 Bond Value = \$572.856 + \$355.50 Bond Value = \$928.35 Current Market Price for the bond = \$928.35 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?

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FI515Homework3_janiceFernandez - Problems Chapter 5 5-1...

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