Purchase Solution

# Bonds valuation and YTM

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Assume today is May 16, 2003. On September 20, 1996, you bought \$60,000 face value of 9% semiannual US Treasury Bonds due on May 15, 2009 at 106% of par. The bond was originally issued with a 25 year maturity in 1984. How much accrued interest did you pay when you bought the bond? If the market demands 4% for 6 - year Treasuries today, how much should your bond be worth today?

If you sold the bond today, how much of a capital gain or loss (if any) would you expect to see on your original investment?

A second semi-annual bond, issued by General Motion, Inc matures in 15 years, has a 6% coupon, and sells at 92% of par. A third bond issued by the City of Portland, is selling at par, has a 4% coupon and matures in 3 years. What are the current yield and yield to maturity for these two bonds?

Your top marginal tax rates are 35% federally and 8% for the State of Maine. Which bond offers the best return currently, after taxes are considered? What other factors should go into your consideration?

Using financial Management theory, predict what you believe will happen to term structure and risk structure of interest rates over the coming year.

##### Solution Summary

The solution shows steps to calculate the price and yield to maturity of bonds.

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Assume today is May 16, 2003. On September 20, 1996, you bought \$60,000 face value of 9% semiannual US Treasury Bonds due on May 15, 2009 at 106% of par. The bond was originally issued with a 25 year maturity in 1984. How much accrued interest did you pay when you bought the bond? If the market demands 4% for 6 - year Treasuries today, how much should your bond be worth today? If you sold the bond today, how much of a capital gain or loss (if any) would you expect to see on your original investment> A second semi-annual bond, issued by General Motion, Inc matures in 15 years, has a 6% coupon, and sells at 92% of par. A third bond issued by the City of Portland, is selling at par, has a 4% coupon and matures in 3 years. What are the current yield and yield to maturity for these two bonds? Your top marginal tax rates ...

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