Please Help me.. 1. You own a bond with a 7.8 percent coupon rate and a yield to
ID: 2762947 • Letter: P
Question
Please Help me..
1. You own a bond with a 7.8 percent coupon rate and a yield to call of 8.7 percent. The bond currently sells for $1,102. If the bond is callable in five years, what is the call premium of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Call Premium = $_________
2. A convertible bond has a 6 percent coupon, paid semiannually, and will mature in 15 years. If the bond were not convertible, it would be priced to yield 5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $61 per share. What is the minimum value of this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Minimum Value $________
2. A convertible bond has a 6 percent coupon, paid semiannually, and will mature in 15 years. If the bond were not convertible, it would be priced to yield 5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $61 per share. What is the minimum value of this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Minimum Value $________
Explanation / Answer
1. Here, we need to find the the price at which the bond is called. - It is the face value or the price at which we call it.
We use the FV formula in excel as in =fv(rate,nper,pmt,pv) where rate = ytc = 0.087/2, nper = 5*2 = 10,pmt = 7.8% of 1000 = 78 and semi annual = 78/2, PV = -1102
hecen the call value of bond = fv(0.087/2, 10,78/2,-1102) = $1,211.06
Hence call premium = Call Price -Original FV = 1211.06 -1000 = 211.06
2. Here we calculate the the price of the bond,
Now the bond is called at value equal to 25 shares of $61 each that would be , 25*61 = 1,525, So FV = 1,525
The Rate = 0.05/2
PMT = 0.06*1000 = 60 and semi annual = 60/2 = 30
nper = 15*2 = 30 periods semi-annual
hence price of the bond =pv(rate,nper,pmt,fv) =pv(0.05/2,30,30,1525) =$ 1,354.94
Minimum Value $1,354.94