1. $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually....

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Finance

1. $1,000 par-value bond with 5 years of maturity pays a 5%coupon rate, paid annually. What is the value of the bond if yourrequired rate of return is 12%?
2. A $1,000 par-value bond with 5 years of maturity pays 5%coupon rate, paid semi-annually. What is the value of the bond ifyour required rate of return is 12%?
3. AAA, Inc. currently has an issue of bonds outstanding thatwill mature in 31 years. The bonds have a face value of $1,000 anda stated annual coupon rate of 20.0% with annual coupon payments.The bond is currently selling for $890. The bonds may be called in4 years for 120.0% of the par value ($1200). What is your expectedquoted annual rate of return if you buy the bonds and hold themuntil maturity?
4. BBB, Inc. bonds have a par value of $1,000, a 33-yearmaturity, and an annual coupon rate of 12.0% with annual couponpayments. The bonds are currently selling for $923. The bonds maybe called in 4 years for 112.0% of par ($1120). What quoted annualrate of return do you expect to earn if you buy the bonds andcompany calls them when possible?

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4.2 Ratings (906 Votes)

K = N

Bond Price =? [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N

k=1

K =5

Bond Price =? [(5*1000/100)/(1 + 12/100)^k] + 1000/(1 + 12/100)^5

k=1

Bond Price = 747.67

K = Nx2

Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =5x2

Bond Price =? [(5*1000/200)/(1 + 12/200)^k] + 1000/(1 + 12/200)^5x2

k=1

Bond Price = 742.4

Please ask remaining parts seperately, questions are unrelated, I have done one bonus

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1. $1,000 par-value bond with 5 years of maturity pays a 5%coupon rate, paid annually. What is the value of the bond if yourrequired rate of return is 12%?2. A $1,000 par-value bond with 5 years of maturity pays 5%coupon rate, paid semi-annually. What is the value of the bond ifyour required rate of return is 12%?3. AAA, Inc. currently has an issue of bonds outstanding thatwill mature in 31 years. The bonds have a face value of $1,000 anda stated annual coupon rate of 20.0% with annual coupon payments.The bond is currently selling for $890. The bonds may be called in4 years for 120.0% of the par value ($1200). What is your expectedquoted annual rate of return if you buy the bonds and hold themuntil maturity?4. BBB, Inc. bonds have a par value of $1,000, a 33-yearmaturity, and an annual coupon rate of 12.0% with annual couponpayments. The bonds are currently selling for $923. The bonds maybe called in 4 years for 112.0% of par ($1120). What quoted annualrate of return do you expect to earn if you buy the bonds andcompany calls them when possible?