Springfield Wholesale Markets has a 4.25% coupon bond outstanding that matures i
ID: 1171300 • Letter: S
Question
Springfield Wholesale Markets has a 4.25% coupon bond outstanding that matures in 8 years. The bond pays interest semi-annually. What is the market price of the bond if the par value is $1000 and the yield to maturity is 6.75%?
.
$847.39
$794.34
$937.26
$967.24
$849.26
Amy purchased a 15-year bond at par value when it was initially issued five years ago. The bond has an annual coupon rate of 6% and a par value of $1000. The current market interest rate (yield to maturity) is 4.25%. At the current market interest rate, this bond will sell at _______. Assuming no change in market interest rates, the bond will present the Amy with capital ________ as it matures.
.
premium; gains
discount; gains
premium; losses
discount; losses
A.$847.39
B.$794.34
C.$937.26
D.$967.24
E.$849.26
Explanation / Answer
1-
value of bond
Using PV function in MS excel
pv(rate,nper,pmt,fv,type) rate = 6.75%/2 = 3.375% nper = 8*2 = 16 PMT = 1000*4.25%/2 = 21.25 fv = 1000
PV(3.375%,16,21.25,1000,0)
($847.39)
Answer is A
2-
Answer is C
Premium, losses
bond would be sold at premium as its coupon rate is greater than YTM and as bond will approach to maturity it would results in capital gain
1-
value of bond
Using PV function in MS excel
pv(rate,nper,pmt,fv,type) rate = 6.75%/2 = 3.375% nper = 8*2 = 16 PMT = 1000*4.25%/2 = 21.25 fv = 1000
PV(3.375%,16,21.25,1000,0)
($847.39)
Answer is A
2-
Answer is C
Premium, losses
bond would be sold at premium as its coupon rate is greater than YTM and as bond will approach to maturity it would results in capital gain