Bond valuation Nungesser Corporation\'s outstanding bonds have a $1,000 par valu

Question

Bond valuation

Nungesser Corporation's outstanding bonds have a $1,000 par value, a 11% semiannual coupon, 7 years to maturity, and an 10.5% YTM. What is the bond's price? Round your answer to the nearest cent.

Yield to maturity

A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,209, and currently sell at a price of $1,366.91.

What is their nominal yield to maturity? Round your answer to two decimal places.

What is their nominal yield to call? Round your answer to two decimal places.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Nper = 7*2 = 14 (indicates the period)

PV = ? (indicates the price)

FV = 1000 (indicates the face value)

Rate = 10.5%/2 (indicates semi-annual YTM)

PMT = 1000*11%*1/2 = 55 (indicates the amount of interest payment)

Bond Price = PV(Rate,Nper,PMT,FV) = PV(10.5%/2,14,55,1000) = $1024.36or $1024.4

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Part B:

Nominal Yield to Maturity:

Nper = 12*2 = 24 (indicates the period)

PV = 1366.91 (indicates the price)

FV = 1000 (indicates the face value)

Rate = ? (indicates semi-annual YTM)

PMT = 1000*11%*1/2 = 55 (indicates the amount of interest payment)

Yield to Maturity = Rate(Nper,PMT,PV,FV)*2 = Rate(24,55,-1366.91,1000)*2 = 6.54%

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Yield to Call

Nper = 6*2 = 12 (indicates the period)

PV = 1366.91 (indicates the price)

FV = 1209 (indicates the face value)

Rate = ? (indicates semi-annual YTC)

PMT = 1000*11%*1/2 = 55 (indicates the amount of interest payment)

Yield to Call = Rate(Nper,PMT,PV,FV)*2 = Rate(12,55,-1366.91,1209)*2 = 6.44%

Thanks.

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