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1) A zero coupon bond has a face value of $1,000 and matures in 4 years
1) A zero coupon bond has a face value of $1,000 and matures in 4 years. Investors require? a(n) 7.8% annual return on these bonds.
What should be the selling price of the? bond? ?(Round to the nearest? cent).
2.With celebrity? bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of? 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 7?% and will mature on this day 30 years from now. The yield on the bond issue is currently 6.25?%. At what price should this bond trade? today, assuming a face value of ?$1,000 and annual? coupons?
The price of the bond today should be ? ?(Round to the nearest? cent.)
3.A 11?-year bond pays interest of $28.90 ?semiannually, has a face value of $1,000?, and is selling for $814.76.
What are its annual coupon rate and yield to? maturity? ?(Round to two decimal? places)
4.Iron Maiden became the first? heavy-metal band to sell bonds when it arranged a? $30 million deal in February 1999. The collateral on the bonds? (and source of cash flow for interest and principal? payments) consisted of future royalties from the? band's albums like? "The Number of the? Beast." Each bond in the issue had a face value of ?$1,000?, a term of 23 years and paid semiannual coupons at the rate of 6?%. The yield to maturity on the bond was 5.25?%.
At what price did each of the bonds? sell? (Round to the nearest? cent.)
5.A Ford Motor Co. coupon bond has a coupon rate of 6.5?%, and pays annual coupons. The next coupon is due tomorrow and the bond matures 37 years from tomorrow. The yield on the bond issue is 6.3?%. At what price should this bond trade? today, assuming a face value of ?$1,000??
The price of the bond today should be ? ?(Round to the nearest? cent.)
6.Man-zeer Inc.,? (a Kramer/Costanza joint? venture) bonds are currently trading at ?$922.62. The bonds have a face value of $1,000?, a coupon rate of 8?% with coupons paid? semiannually, and they mature in 10 years.
?What is the yield to maturity of the? bonds? (Round to two decimal? places.)
Expert Solution
1) Computation of Selling Price of Zero Coupon Bond using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Selling Price of Zero Coupon Bond = ?
Rate = 7.8%
Nper = 4 years
PMT = 0
FV = $1,000
Substituting the values in formula:
=-pv(7.8%,4,0,1000)
PV or Selling Price of Zero Coupon Bond = $740.50
2) Computation of Current Bond's Price using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Current Bond Price = ?
Rate = 6.25%
Nper = 30 years
PMT = $1,000*7%= $70
FV = $1,000
Substituting the values in formula:
=-pv(6.25%,30,70,1000)
PV or Current Bond's Price = $1,100.53
3) Computation of Annual Coupon Rate:
Annual Coupon Rate = ($28.90*2)/$1,000 = 5.78%
Computation of Yield to Maturity using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)*2
Here,
Rate = Yield to Maturity = ?
Nper = 11 years * 2 = 22 Periods
PMT = $28.90
PV = $814.76
FV = $1,000
Substituting the values in formula:
=rate(22,28.90,-814.76,1000)*2
Rate or Yield to Maturity = 8.39%
4) Computation of Current Bond's Price using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Current Bond Price = ?
Rate = 5.25%/2 = 2.625% compounded semiannually
Nper = 23 years* 2 = 46 periods
PMT = $1,000*6%/2 = $30
FV = $1,000
Substituting the values in formula:
=-pv(2.625%,46,30,1000)
PV or Current Bond's Price = $1,099.48
5) Computation of Current Bond's Price using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Current Bond Price = ?
Rate = 6.3%
Nper = 37 years
PMT = $1,000*6.5%= $65
FV = $1,000
Substituting the values in formula:
=-pv(6.3%,37,65,1000)
PV or Current Bond's Price = $1,028.44
6) Computation of Yield to Maturity using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)*2
Here,
Rate = Yield to Maturity = ?
Nper = 10 years * 2 = 20 Periods
PMT = $1,000*8%/2 = $40
PV = $922.62
FV = $1,000
Substituting the values in formula:
=rate(20,40,-922.62,1000)*2
Rate or Yield to Maturity = 9.20%
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