Please show work. 5. Morning Star Inc. sold an issue of 30-year, $1,000 par valu
ID: 2644599 • Letter: P
Question
Please show work.
5. Morning Star Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds has a 14.6% coupon rate and pays interest annually. It is now 7 years later. The current market rate of interest of the Morning Star INc. bonds is 11.7%. What is the current market price (intrinsic value) of the bonds? Round the answer to two decimal places.
Answer is $1,228.41 but I can't get the right answer with the excel formula that I'm using.
6. Alex plans to purchase a callable bond of Horizon Inc. The bond is 20-year to maturity, carry 13.5% annual coupon, paid semi-annually, and have a$1,000 par value. The bond is selling now for $1,287 each. The bond can be called back in 7 years at a call price $1,067.5. What is the yield to call for these bonds? Round the answer to two decimal places in percentage form.
Answer is 12.27% but the formula that I have is not giving me the same answer.
Explanation / Answer
Number of periods 30 Par value $1,000 Coupon rate 14.60% Interest Annualy Time after issuance 7 Market rate 11.7% Interest = Par value * Coupon rate $146.00 Intrinsic Value = 146 * PVAF (11.7%, 7) + Par value * PVF(11.7%,7) PVAF (11.7%, 7) = (1 - (1+r)^-n)/r 4.607501094 PVF(11.7%,7) = 1/(1+r)^n 0.460922372 Intrinsic Value = $1,133.62 Maturity 20 Coupon rate 13.50% Paid Semi annually Par value $1,000 Selling price now $1,287 Call back period , N 14 Because Semi Annually Call price $1,067.50 YTC = (I+(Par Value - Market Price)/ N) / ((Par Value + Market Value)/2) I = Coupon Rate/2 * Par Value $67.50 Yield To Call = 6.06%