XYZ Corp.’s outstanding bonds
XYZ Corp.’s outstanding bonds have a $5,000 par value and theymature in 5 years. Their yield-to-maturity is 8%, annual couponrate is 6%, and semi-annual compounding.
- (a) What’s the bond’s current market price?
- (b) What is the bond’s current yield?
- (c) If the Yield-to-maturity is 4%, what’s the bond’s currentmarket price?
please write the answer and how you worked it out on hereinstead of paper
- (d) If the Yield-to-maturity is 4%, what is the bond’s currentyield?
Answer:
a.Information provided:
Par value= future value=$5,000
Time= 5 years*2= 10 semi-annualperiods
Coupon rate= 6%/2= 3%
Coupon payment= 0.03*5,000= $150per semi-annual period
Yield to maturity= 8%/2= 4% persemi-annual period
The price of the bond is calculatedby computing the present value of the bond.
Enter the below in a financialcalculator to compute the present value:
FV= 5,000
PMT= 150
N= 10
I/Y= 4
Press the CPT key and PV tocalculate the present value of the bond.
The value obtained is4,594.46.
Therefore, the price of the bond is$4,594.46.
b.Current yield is calculated usingthe below formula:
Current Yield= Annualinterest/Current price
= $150 / $4,594.46
= 0.0326*100
= 3.26%.
c..Information provided:
Par value= future value=$5,000
Time= 5 years*2= 10 semi-annualperiods
Coupon rate= 6%/2= 3%
Coupon payment= 0.03*5,000= $150per semi-annual period
Yield to maturity= 4%/2= 2% persemi-annual period
The price of the bond is calculatedby computing the present value of the bond.
Enter the below in a financialcalculator to compute the present value:
FV= 5,000
PMT= 150
N= 10
I/Y= 2
Press the CPT key and PV tocalculate the present value of the bond.
The value obtained is5,449.13.
Therefore, the price of the bond is$5,449.13.
d.Current yield is calculated usingthe below formula:
Current Yield= Annualinterest/Current price
= $150 / $5,449.13
= 0.0275*100
= 2.75%.
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