Purchase Solution

# Bond Valuation and YTM of Bonds

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You are given the following data on bonds from AT&T, Dell, and IBM. Each bond has a par value of \$1000.

AT&T
Dell
IBM

Coupon
6.80
6.50
8.375%

Maturity
05/15/2036
04/15/2038
11/01/2019

Frequency
Semiannual
Semiannual
Semiannual

Rating
A
A-
A+

Calculate the value of the bond if your required return is 5 percent on AT&T, 6.5 percent on Dell, and 8 percent on IBM.
Determine the yield to maturity (YTM) on the bonds given the following prices.
AT&T
Dell
IBM

Price
\$1,060.00
\$1,016.57
\$1,307.78

Based on each bond's ratings and your determination of its yield to maturity explain how you rank each bond for risk and return.
Assume you had \$10,000 to invest. How many of each bond would you have? What dollar amount of interest would each bond return on the investment for the next year? What would your percentage return be for the year, that is, your interest payments divided by the total amount invested? You must submit your backup in Excel or other supporting documentation showing how answers were reached.

##### Solution Summary

You are given the following data on bonds from AT&T, Dell, and IBM. Each bond has a par value of \$1000.
a. Calculate the value of the bond if your required return is 5 percent on AT&T, 6.5 percent on Dell, and 8 percent on IBM.
b, Determine the yield to maturity (YTM) on the bonds given the following prices.
AT&T
Dell
IBM
c. Based on each bond's ratings and your determination of its yield to maturity explain how you rank each bond for risk and return.
d. Assume you had \$10,000 to invest. How many of each bond would you have? What dollar amount of interest would each bond return on the investment for the next year? What would your percentage return be for the year, that is, your interest payments divided by the total amount invested? You must submit your backup in Excel or other supporting documentation showing how answers were reached.

##### Solution Preview

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Foundation of Financial Management
You are given the following data on bonds from AT&T, Dell, and IBM. Each bond has a par value of \$1000.
Coupon Maturity Frequency Rating
AT&T 6.80% 36-05-15 Semiannual A
Dell 6.50% 38-04-15 Semiannual A-
IBM 8.375% 19-11-01 Semiannual A+

Calculate the value of the bond if your required return is 5 percent on AT&T, 6.5 percent on Dell, and 8 percent on IBM.
The Value of a bond is ...

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