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Homework answers / question archive / 1) McConnell Corporation has bonds on the market with 10

1) McConnell Corporation has bonds on the market with 10

Finance

1)

McConnell Corporation has bonds on the market with 10.5 years to maturity, a YTM of 7.1 percent, a par value of $1,000, and a current price of $1,051. The bonds make semiannual payments.

 What must the coupon rate be on these bonds? 

 

2)

Gerry also wants to invest some money this year such that his investment returns $15,000 270 days from now. What amount of money should Gerry invest today at 4.1% interest p.a. to ensure he has $15,000 270 days from now? 

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1)

Computation of Semiannual Coupon Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Coupon Payment = ?

Rate = 7.1%/2 = 3.55%

Nper = 10.5 years *2 = 21 Periods

PV = $1,051

FV = $1,000

Substituting the values in formula:

=pmt(3.55%,21,-1051,1000)

PMT or Semiannual Coupon Payment = $38.99

So, annual Coupon Payment $38.99*2 = $77.97

 

Annual Coupon Rate = $77.97/$1,000 = 7.80%

 

2)

Computation of Present Value using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value = ?

Rate = 4.1%/360 = 0.01139%

Nper = 270 days

PMT = 0

FV = $15,000

Substituting the values in formula:

=-pv(0.01139%,270,0,15000)

PV or Present Value = $14,545.75

 

Note: 365 days in a year assumed.

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