Please answer the following and show all work necessary. A company\'s bonds curr
ID: 2772219 • Letter: P
Question
Please answer the following and show all work necessary. A company's bonds currently sell for $1,200. They pay a 6.5% annual coupon rate, have a 10 year maturity, and a $1,000 par value. The bonds can be called in 5 years at $1,065. Calculate the difference between this bond's YTM and its YTC (if called in 5 years). Suppose a seven-year, $1000 par value bond with an 8% coupon rate and semiannual coupons is trading with a YTM of 6.75%. Is this bond currently trading at a discount, at par, or at a premium? Explain how you can tell. A company's bonds have a $1000 par value, a 6% semiannual coupon, 5 years to maturity, and 8% YTM. What is the bond's price? A bond has a $1000 par value, 30 years to maturity, a 3% annual coupon, and sells for $975. What is this bond' YTM?Explanation / Answer
5)YTM = { (interest + [(Face value -price) /number of years] } /[(price+face value )/2]
YTM = { 65 + [(1000 -1200 )/ 10 ] } /[(1000+1200)/2 ]}
= {65 + [-200 /10 ]} /[2200/2]
={65 - 20 } / 1100
= 45 /1100
= 4.09%
YTC = {65 + [1065 - 1200 ]5 } /[(1065+1200)/2]
= { 65 + [ - 135 /5 ] } /[2265 /2]
= { 65 - 27 } /1132.5
= 38 /1132.5
= .0336 OR 3.36%
6)The bond is trading at premium since YTM is less than the BOND COUPON RATE
7)Bond price = (interest *PVAF@4%,10) +(face value *PVF @4%,10year)
= (30 * 8.11090 ) +(1000*.67556)
= 243.33 + 675.56
= 918.89
**Interest = 1000 *.06 *6/12 = 30
YTM = 8/2 = 4% as it is semiannual payment ,Maturity = 5*2 =10
7)YTM = [ 30 + (1000-975)/30] /[(1000+975)/2]
= [30 + (25/30) ] . [1975/2]
= [30 + .833 ] / 987.5
= 30.833 / 987.5
= .0312 OR 3.12%