BOND PRICING. Find PBOND for each of the following $1000 par value bonds. Use a calculator to find the correct answers. Round to the nearest penny ($0.01). Example: 12% coupon (APR, compounded annually), matures in one year, r=12% 5. 12%APR 12% = 0.12 First, convert the coupon rate from APR to periodic rate: lyear уear Second, find the соиpon: Coupon - (СоuponRate)(Face) - (0.12)(1000) — 120 - С %3D (lyr)lyrs |= 1yr = T yr Third, find the relevant number of periods: Fourth, use bond pricing formula with the appropriate discount rate (here, 12%): T 1000 + 120 1000 C F 120 1120 PBOND = 1000 %3D (1 + r)' )' (1+r)" | (1.12)' (1.12)' 1.12 1.12 1.12 \t=1 12% coupon (APR, compounded quarterly), matures in one year, r=4% per quarter [Here, the discount rate is ready to use, while the coupon rate is still in its marketing-gimmick form.] b. а. 12% coupon (APR, compounded semi-annually), matures in two years, r=6% per 6 months

BOND PRICING. Find PBOND for each of the following $1000 par value bonds. Use a calculator to find the correct answers. Round to the nearest penny ($0.01). Example: 12% coupon (APR, compounded annually), matures in one year, r=12% 5. 12%APR 12% = 0.12 First, convert the coupon rate from APR to periodic rate: lyear уear Second, find the соиpon: Coupon - (СоuponRate)(Face) - (0.12)(1000) — 120 - С %3D (lyr)lyrs |= 1yr = T yr Third, find the relevant number of periods: Fourth, use bond pricing formula with the appropriate discount rate (here, 12%): T 1000 + 120 1000 C F 120 1120 PBOND = 1000 %3D (1 + r)' )' (1+r)" | (1.12)' (1.12)' 1.12 1.12 1.12 \t=1 12% coupon (APR, compounded quarterly), matures in one year, r=4% per quarter [Here, the discount rate is ready to use, while the coupon rate is still in its marketing-gimmick form.] b. а. 12% coupon (APR, compounded semi-annually), matures in two years, r=6% per 6 months

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 20PROB

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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
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