1 Calculate the yield to maturity on the following bonds A A

1- Calculate the yield to maturity on the following bonds:

A- A 8.6 percent coupon (paid semiannually) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915.

B- An 5.7 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $911.

C- An 7.7 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,061.

  
(For all requirements, do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))

2- Financial analysts forecast L Brands (LB) growth for the future to be 12.4 percent. LB\'s most recent dividend was $1.70. What is the fair present value of L Brands’s stock if the required rate of return is 15.8 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

a.	Yield to maturity		% per year
b.	Yield to maturity		% per year
c.	Yield to maturity

Solution

1.

a.

Yield to maturity

9.962%

Per year

b.

Yield to maturity

6.942%

Per year

c.

Yield to maturity

6.691%

Per year

Working:

Using financial calculator BA II Plus - Input details:

a.

b.

c.

FV = Future Value =

-$1,000.00

-$1,000.00

-$1,000.00

PV = Present Value =

$915.00

$911

$1,061

N = Total number of periods = Years x frequency =

20

40

8

PMT = Payment = Coupon / frequency =

-$43.00

-$14.25

-$77.00

CPT > I/Y = Rate or YTM =

                   4.9810

                  1.7354

               6.6907

Convert Yield in annual and percentage form = Yield*Frequency / 100 =

9.962%

6.942%

6.691%

2.

Fair present value = Dividend x (1+Growth rate)/(Required rate - growth rate)

Fair present value = 1.7 x (1+12.4%)/(15.8% - 12.4%)

Fair present value = $56.20

a.	Yield to maturity	9.962%	Per year
b.	Yield to maturity	6.942%	Per year
c.	Yield to maturity	6.691%	Per year