Bond Valuation Problems (paraphrased from Financial Management, 13th edition, bu
ID: 2755054 • Letter: B
Question
Bond Valuation Problems (paraphrased from Financial Management, 13th edition, but inspired by y'all) Stephanie Enterprises has bonds that have a 9 percent coupon rate. The interest is paid semiannually and the bonds mature in 8 years. Their par value is $1,000. The price of the bonds are $1,070, and are callable in 5 years with a call price of $1,050 What is the yield to maturity? What is the yield to call? Bond Valuation Problems (paraphrased from Financial Management, 13th edition, but inspired by y'all) Stephanie Enterprises has bonds that have a 9 percent coupon rate. The interest is paid semiannually and the bonds mature in 8 years. Their par value is $1,000. The price of the bonds are $1,070, and are callable in 5 years with a call price of $1,050 What is the yield to maturity? What is the yield to call?Explanation / Answer
Yield to Maturity Par value of bond 1000 interest semiannually 4.5% 45 PVAF( 4.5%, 16(8*2)) 11.234 Total interest income 505.53 Market price of the bond 1070 PF interest factor 0.495 Present value of bond 529.65 (1070*.495) total value of bond 1035.18 (529.65+505.53) Earning on bond 35.18 1035.18-1000 YTM 3.52% 35.18/1000*100 Yield to Call: Par value of bond 1000 interest semiannually 4.5% 45 PVAF( 4.5%, 10(5*2)) 7.9127 Total interest income 356.0715 Market price of the bond 1050 PF interest factor 0.6439 Present value of bond 676.095 total value of bond 1032.1665 Earning on bond 32.1665 YTC 3.22%