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Homework answers / question archive / 1 years ago Sbitany has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate

1 years ago Sbitany has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate

Finance

1 years ago Sbitany has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate. The issue has ten years of maturity. Bonds of similar risk are currently selling to yield a 12 percent rate of return. The current value of each Sbitany's bond is Sbitany has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk are currently selling to yield a 12 percent rate of return. The current value of each Sbitany's bond is Al Safa Inc. plans to issue new bonds to finance its new project. Al-Safa has identified a company of similar risk with an outstanding bond issue that has an 8 percent coupon rate paid semiannually having a maturity of ten years. This firm's bonds are currently selling for $1.091.96. If interest is paid annually for both bonds, what must the coupon rate of the new bonds be in order for the issue to sell at par?

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1

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
 
                  K =9
Bond Price =∑ [(14*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^9
                   k=1
 
Bond Price = 1106.6
Using Calculator: press buttons "2ND"+"FV" then assign
 
 
PMT = Par value * coupon %=1000*14/(100)
I/Y =12
N =9
FV =1000
CPT PV
 
Using Excel
=PV(rate,nper,pmt,FV,type)
=PV(12/(100),9,-14*1000/(100),-1000,)

2

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
 
                  K =10
Bond Price =∑ [(14*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^10
                   k=1
 
Bond Price = 1113
Using Calculator: press buttons "2ND"+"FV" then assign
 
 
PMT = Par value * coupon %=1000*14/(100)
I/Y =12
N =10
FV =1000
CPT PV
 
Using Excel
=PV(rate,nper,pmt,FV,type)
=PV(12/(100),10,-14*1000/(100),-1000,)

3

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
 
                  K =10
1091.96 =∑ [(8*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10
                   k=1
 
YTM% = 6.7
Using Calculator: press buttons "2ND"+"FV" then assign
 
PV =-1091.96
PMT = Par value * coupon %=1000*8/(100)
 
N =10
FV =1000
CPT I/Y
 
Using Excel
=RATE(nper,pmt,pv,fv,type,guess)
=RATE(10,-8*1000/(100),1091.96,-1000,,)