Final Exam 07022018 6 A 12year annual coupon bond is priced

Final Exam (07/02/2018) 6. A 12-year, annual coupon bond is priced at $1,10260. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate? A. 5.09 percent B. 5.33 percent C. 5.74 percent D. 628 percent E. 6.51 pcrcent 7. AB Builders has 15 year bonds outstanding with a face value of $1,000 and a market price of coupon rate A. $974 The bonds pay intcrest annually and have a yield to maturity of 4.03 percent. What is the 3.80 percent B. 4.20 percent C. 4.25 percent D. 3.75 percent E. 395 percent 8. The dividend yield is defined as: A. the last armual dividend divided by the current market price per share B. the last annual dividend divided by the current book value per share. C. next year\'s expected dividend divided by the current market price per share. D next year\'s expecited dividend divided by the current book value per share. E. next years expected dividend divided by the par value per share.

Solution

Answer 6.

Face Value = $1,000
Current Price = $1,102.60
Annual YTM = 5.33%
Time to Maturity = 12 years

Let annual coupon be $x

$1,102.60 = $x * PVIFA(5.33%, 12) + $1,000 * PVIF(5.33%, 12)
$1,102.60 = $x * (1 - (1/1.0533)^12) / 0.0533 + $1,000 / 1.0533^12
$1,102.60 = $x * 8.7006 + $536.26
$566.34 = $x * 8.7006
$x = $65.10

Annual Coupon = $65.10
Annual Coupon Rate = $65.10 / $1,000
Annual Coupon Rate = 6.51%

Answer 7.

Face Value = $1,000
Current Price = $974
Annual YTM = 4.03%
Time to Maturity = 15 years

Let annual coupon be $x

$974 = $x * PVIFA(4.03%, 15) + $1,000 * PVIF(4.03%, 15)
$974 = $x * (1 - (1/1.0403)^15) / 0.0403 + $1,000 / 1.0403^15
$974 = $x * 11.0951 + $552.87
$421.13 = $x * 11.0951
$x = $38.0

Annual Coupon = $38.0
Annual Coupon Rate = $38.0 / $1,000
Annual Coupon Rate = 3.80%

Answer 8.

The dividend yield is defined as next year’s expected dividend by the current market price per share.