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    Bonds: current yield, yield to call, price

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    1. A newly-issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually. Also, the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is $1,000. The yield to maturity is 7 percent.

    a. What is the bond's price today ?

    b. What is the bond's current yield ?

    c. What is the bond's yield to call ?

    d. What will be the bond's price one year from today?

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    Solution Preview

    1. A newly-issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually.  Also, the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is $1,000.  The yield to maturity is 7 percent.

    a. What is the bond's price today ?  

    Bond Price:
    Calculating Price of bond
    To calculate the price of the bond we need to calculate / read from tables the values of
    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n

    Data
    No of years to maturity= 20
    Coupon rate= 8.00%
    Face value= $1,000
    Frequency = S Semi ...

    Solution Summary

    The solution calculates price today, current yield, yield to call and price one year from today for a corporate bond

    $2.19