Bond Prices and Yields.Assume that the Financial Management Corporation\'s $1,00
ID: 2669612 • Letter: B
Question
Bond Prices and Yields.Assume that the Financial Management Corporation's $1,000 par-value bond has a 6.200% coupon, matures on May 15, 2020, has a current price quote of 109.501 and a yield to maturity (YTM) of 5.099%. Given this information answer the following questions:A. What is the dollar price of this bond ? (rounded to the nearest cent) $
B. What is the bond's current yield? (rounded to the nearest 2decimal places) %
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Question #2
Yield to Maturity. The Salem Company bond currently sales for $528.81, has a coupon interest rate of 8%, and a $1,000 par value, pays interest annually, and has 20yrs to maturity. Calculate the YTM % on this bond. Round answer to the nearest 3decimals
Explanation / Answer
Ans to Q1 : We have FV=$1000, PV=109.501% , Rate = YTM=5.099%, Coupon =6.2%. So PMT = 6.2%*FV = 6.2%*$1000 = $62 A. The price of a bond, expressed as a percentage of the face value. SO as this bond has a face value of $1000, and its price is quoted as 109.501%. So Dollar price of this bond = 1.09501*Face value of Bond = 1.09501*$1000 = $1095.01 ..............................................Ans (a) B. Current Yield = COupon PMT rxd/Current price = $62/$1095.01 = 5.66% ...ANs (b) Ans to Q2 :We have FV=$1000, PV=$528.81 , Coupon =8%. So PMT = Coupon*FV = 8%*$1000 = $80. Maturity = nper =20yrs YTM is given by Rate function = Rate(nper,pmt,pv,fv) = Rate(20,80,-528.81,1000) ie YTM = 15.91%