Question #1 A bond with 7yrs. to maturity and a coupon rate of 13% has a par, or
ID: 2697284 • Letter: Q
Question
Question #1
A bond with 7yrs. to maturity and a coupon rate of 13% has a par, or face, value of $21,000. Interest is paid annually. If you require a return of 16% on this bond what is the value of this bond to you? (round answer to the nearest cent) *Answer is dollar amount
Question #2
Yield to Maturity/The Salem Co. bond currently sells for $1,378.83, has a coupon interest rate of 15%, and a $1,000 par value, pays interest annually, and has 10yrs. to maturity. Calculate the yield to maturity (YTM) on this bond. (Round to three decimal places) * Answer is a Percentage
Explanation / Answer
(1) Face Value Fv of bond = $1000
Maturity = 7yrs. So it has nper = 7periods
Coupon 13% . SO PMT = 13%*$1000 = $130
Reqd Return =YTM = Rate = 16% Annual
So Present Value of Bond is given by PV = PV(Rate, nper, PMT,FV)
ie PV = PV(16%,7,130,1000) = ($878.84) ...................Ans (1)
Negative sign indicates that you wil have a cash outflow when youbuy the bond which is natural :)
(2) Face Value Fv of bond = $1000
Maturity = 10yrs. So it has nper = 10periods
Coupon 15% . SO PMT = 15%*$1000 = $150
PV of bond is $1378.83
What is YTM = Rate
We have excel function Rate = Rate(nper,PMT,PV,FV)
ie YTM = Rate(10,150,-1378.83,1000) = 9.077%.....................Ans (2)