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Homework answers / question archive / Q1)Alfa Company is issuing eight-year bonds with a coupon rate of 6
Q1)Alfa Company is issuing eight-year bonds with a coupon rate of 6.5 percent and semiannual coupon payments. If the current market rate for similar bonds is 8 percent, what will be the bond price? If the company wants to raise $1.25 million, how many bonds does the firm have to sell?
Q2)Suppose a 3 year bond with a 6% coupon rate that was purchased for $760 and had a promised yield of 8%. Suppose that interest rates increased and the price of the bond declined. Displeased, you sold the bond for 798.8 after having owned it for 1 year. What is the realized yield ?
| K = Nx2 |
| Bond Price =∑ [(1000 Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
| k=1 |
| K =8x2 |
| Bond Price =∑ [(6.5*1000/200)/(1 + 8/200)^k] + 1000/(1 + 8/200)^8x2 |
| k=1 |
| Bond Price = 912.61 |
| Number of bonds to issue = capital to be raised/(bond price) |
| Number of bonds to issue = 1250000/(912.61) =1369.7 |
