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1) What is the value of a bond with 6% semi annual coupons and YTM of 5% and 8 years to maturity? 2
1) What is the value of a bond with 6% semi annual coupons and YTM of 5% and 8 years to maturity? 2. What is the value of a zero coupon bond with YTM of 8% and 5 years to maturity? 3. What is the value of a share that has been paying $2 dividends with no growth prospects, and a required rate of return of 10%? 4. What is the value of a share that has just paid a dividend of $1, growing at 5% and a required rate of return of 10%? 5. What is the value of the share in Q4 in 3 years' time?
Expert Solution
The value of the bond is computed as shown below:
The coupon payment is computed as follows:
= 6% / 2 x $ 1,000 (Since the payments are semi annually, hence divided by 2)
= $ 30
The YTM will be as follows:
= 5% / 2 (Since the payments are semi annually, hence divided by 2)
= 2.50%
N will be as follows:
= 8 x 2 (Since the payments are semi annually, hence multiplied by 2)
= 16
So, the price of the bond is computed as follows:
Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)n ] / r ] + Par value / (1 + r)n
= $ 30 x [ [ (1 - 1 / (1 + 0.025)16 ] / 0.025 ] + $ 1,000 / 1.02516
= $ 30 x 13.05500266 + $ 673.6249335
= $ 1,065.28
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