Homework SourseOrkney House is issuing bonds paying 62 per year but paid se
| Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. |
| Calculate: |
| a) Coupon rate | |||||||||||||||
| b) Current yield | |||||||||||||||
| c) The yield to maturity | |||||||||||||||
| d) The market price of the bond if the market rates for bonds of equal risk changed to 5%. |
| Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. |
| Calculate: |
Solution
Using financial calculator BA II Plus - Input details:
#
FV = Future Value =
$1,000.00
PV = Present Value =
-$975.00
N = Total number of periods = Years x frequency of coupon =
26
PMT = Payment = Coupon / frequency of coupon =
$31.00
CPT > I/Y = Rate or YTM Semiannual =
3.2438
a. Coupon rate = PMT x 2 / FV = 31 x 2 / 1000 = 6.20%
b. Current Yield = PMT x 2 / PV = 31 x 2 / 975 = 6.36%
c. Convert Yield in annual and percentage form = YTM = Yield / 100*2 = 6.49%
d. New Market Price of the bond = $1,113.70 (working below)
Using financial calculator BA II Plus - Input details:
#
I/Y = Rate or yield / 2 =
2.50
PMT = Payment /2 =
-$31.00
N = Total number of remaining periods =
26
FV = Future Value =
-$1,000.00
CPT > PV = Bond Value =
$1,113.70
| Using financial calculator BA II Plus - Input details: | # |
| FV = Future Value = | $1,000.00 |
| PV = Present Value = | -$975.00 |
| N = Total number of periods = Years x frequency of coupon = | 26 |
| PMT = Payment = Coupon / frequency of coupon = | $31.00 |
| CPT > I/Y = Rate or YTM Semiannual = | 3.2438 |
