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a $1,000 par value bond that pays interest annually just paid $68 in interest
- a $1,000 par value bond that pays interest annually just paid $68 in interest. what is the coupon rate ?
- A 05.40% coupon, 11 year annual bond is priced at $876. what is the current yield for this bond?
- 3.what is the price of a $1,000 par value, semi annual coupon with 14 years to maturity, a coupon rate of 07.70% and yield to maturity of 07.60%.?
- what is the price of a $1,000 par value, 4 year annual coupon bond with a 11.10% coupon rate and a yield to maturity of 04.70%?
- 5.you bought a 21 year, 04.50% semi annual coupon bond today and the current market rate of return is 03.90%. The bond is callable in 7 years with a $77 call premium. what price did you pay for the bond?
- 6.a 08.40% annual coupon 12-year bond has a yield to maturity of 05.60%. Assuming the par value is $1,000 and the YTM is expected not to change over the next year;
a. what should the price of the bond be today?
b what is the bond price expected to be in one year?
c what is the expected Capital Gains yield for this bond?
d. what is the expected Current Yield for this bond?
Expert Solution
1). Computation of the coupon rate:-
Coupon rate = Coupon payment / Par value
= $68 / $1,000
= 6.8%
2). Computation of the current yield of the bond:-
Current yield = Annual coupon payment / Current price of the bond
= $1,000*5.40% / $876
= $54 / $876
= 6.16%
3). We can calculate the price of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond
Rate = 7.60%/2 = 3.80% (semiannual)
Nper = 14*2 = 28 periods (semiannual)
Pmt = Coupon payment = $1,000*7.70%/2 = $38.50
FV = $1,000
Substituting the values in formula:
= -pv(3.80%,28,38.50,1000)
= $1,008.53
4). We can calculate the price of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond
Rate = 4.70%
Nper = 4 periods
Pmt = Coupon payment = $1,000*11.10% = $111
FV = $1,000
Substituting the values in formula:
= -pv(4.70%,4,111,1000)
= $1,228.53
5). We can calculate the price of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond
Rate = 3.90%/2 = 1.95% (semiannual)
Nper = 7*2 = 14 periods (semiannual)
Pmt = Coupon payment = $1,000*4.50%/2 = $22.50
FV = $1,000 + $77 = $1,077
Substituting the values in formula:
= -pv(1.95%,14,22.50,1077)
= $1,095.21
6-a). We can calculate the price of the bond today by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond today
Rate = 5.60%
Nper = 12 periods
Pmt = Coupon payment = $1,000*8.40% = $84
FV = $1,000
Substituting the values in formula:
= -pv(5.60%,12,84,1000)
= $1,239.98
b). We can calculate the price of the bond in one year by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of the bond in one year
Rate = 5.60%
Nper = 12-1 = 11 periods
Pmt = Coupon payment = $1,000*8.40% = $84
FV = $1,000
Substituting the values in formula:
= -pv(5.60%,11,84,1000)
= $1,225.42
c). Computation of the capital gains yield:-
Capital gains yield = ($1,225.42 - $1,239.98) / $1,239.98
= -$14.56 / $1,239.98
= -1.17%
d). Computation of the current yield:-
Current yield = Annual coupon payment / Current price of the bond
= $1,000 * 8.40% / $1,239.98
= 6.77%
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