Homework SourseRedesigned Computers has 525 percent coupon bonds outstandin
Redesigned Computers has 5.25 percent coupon bonds outstanding with a current market price of $562.13. The yield to maturity is 16.28 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until these bonds mature?
7.08 years
28.32 years
12.41 years
6.64 years
| A. | 7.08 years | |
| B. | 28.32 years | |
| C. | 12.41 years | |
| D. | 6.64 years |
Solution
Option - D is correct.
| Particulars | Cash flow | Discount factor | Discounted cash flow | |
| Interest payments-Annuity (8.14%,13.28 periods) | 26.3 | 7.9400 | 208.43 | |
| Principle payments -Present value (8.14%,13.28 periods) | 1,000 | 0.3537 | 353.72 | |
| A | Bond price | 562.15 | ||
| Face value | 1,000 | |||
| Premium/(Discount) | -437.86 | |||
| Interest amount: | ||||
| Face value | 1,000 | |||
| Coupon/stated Rate of interest | 5.25% | |||
| Frequency of payment(once in) | 6 months | |||
| B | Interest amount | 1000*0.0525*6/12= | 26.25 | |
| Present value calculation: | ||||
| yield to maturity/Effective rate | 16.28% | |||
| Effective interest per period(i) | 0.1628*6/12= | 8.140% | ||
| Number of periods: | ||||
| Ref | Particulars | Amount | ||
| a | Number of interest payments in a year | 2 | ||
| b | Years to maturiy | 6.64 | ||
| c=a*b | Number of periods | 13 |
