Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a general power bond carries a coupon rate of 9.2%

A General Power bond carries a coupon rate of 9.2%, has 9 years until maturity, and...

Free

50.1K

Verified Solution

Question

Finance

A General Power bond carries a coupon rate of 9.2%, has 9 yearsuntil maturity, and sells at a yield to maturity of 8.2%. (Assumeannual interest payments.)

a. What interest payments do bondholdersreceive each year?

b. At what price does the bond sell?(Do not round intermediate calculations. Round your answerto 2 decimal places.)

c. What will happen to the bond price if theyield to maturity falls to 7.2%? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

d. If the yield to maturity falls to 7.2%, willthe current yield be less, or more, than the yield to maturity?

  • More

  • Less

Answer & Explanation Solved by verified expert
4.2 Ratings (838 Votes)

a

interest payment = coupon rate *par value = 0.092*1000 = 92

b

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =9
Bond Price =? [(9.2*1000/100)/(1 + 8.2/100)^k]     +   1000/(1 + 8.2/100)^9
                   k=1
Bond Price = 1061.95

c

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =9
Bond Price =? [(9.2*1000/100)/(1 + 7.2/100)^k]     +   1000/(1 + 7.2/100)^9
                   k=1
Bond Price = 1129.2

Change in price = 1129.2-1061.95=67.25, "Rise by 67.25"

d

current yield = coupon rate*par value/current price
Current yield%=(9.2/100)*1000/1129.2
Current yield% = 8.15

Current yield is more than YTM
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

A General Power bond carries a coupon rate of 9.2%, has 9 yearsuntil maturity, and sells at a yield to maturity of 8.2%. (Assumeannual interest payments.)a. What interest payments do bondholdersreceive each year?b. At what price does the bond sell?(Do not round intermediate calculations. Round your answerto 2 decimal places.)c. What will happen to the bond price if theyield to maturity falls to 7.2%? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)d. If the yield to maturity falls to 7.2%, willthe current yield be less, or more, than the yield to maturity?MoreLess

Other questions asked by students

Q

using the fact that : A positive integer n ≥ 3 is constructive if it is...

Advance Math
Q

This is a list of some of the steps in the process of seeing a flash...

Medical Sciences
Q

Question 10 Points 3 Which of the following graphs represents zero acceleration Distance m Time...

Biology
Q

If P E 0 33 then what are the odds against E The odds against...

Basic Math
Q

A group of test subjects is divided into twelve groups; then four of the groups...

Basic Math
Q

If refinishing your basement at a cost of $44,141 would add $19,260 to the resale...

Basic Math
Q

1 Simplify the expression completely cos sec 3 csc

Calculus
Q

Required information Problem 13-2A (Algo) Ratios, common-size...

Accounting
Q

Bridgeport Corp. has cash dividends of $185,900, net income of $715,000,...

Accounting
Q

Which of the following would be considered a long - term asset? A. Land B....

Accounting
Q

Dozier Company produced and sold 1,000 units during its first month of operations. It reported...

Accounting
Q

Wice Duever purchased a put option on British pounds for $0.03 per unit. The strike...

Finance