1557 Words7 Pages

Chapter 13
1. A $1,000 bond has a coupon of 6 percent and matures after 10 years.
a. What would be the bond’s price if comparable debt yields 8 percent?
Price = $1,000 x 0.4632 + $1,000 x 6% x 6.7101
Price = $463.20 + $402.61
Price = $865.81
b. What would be the price if comparable debt yields 8 percent and the bond matures after five years?
Price = $1,000 x 0.6806 + $1,000 x 6% x 3.9927
Price = $680.60 + $239.56
Price = $920.16
c. Why are the prices different in a and b?
The price is different in a and b because a has longer period.
d. What are the current yields and the yields to maturity in a and b?
Current Yield:
a. $60 / $865.81 = 6.93%
b. $60 / $920.16 = 6.52%
Yield to Maturity (using Financial Calculator)
a. 8%
b. 8%
2.
a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond?
Price = $1,000 x 0.3855 + $1,000 x 7.5% x 6.1446
Price = $385.50 + $460.85
Price = $846.35
b. If after six years interest rates are still 10 percent, what should be the price of the bond?
Price = $1,000 x 0.6830 + $1,000 x 7.5% x 3.1699
Price = $683 + $237.74
Price = $920.74
c. Even though interest rates did not change in a and b, why did the price of the bond change
The price of the bond changed because certain time period passed.
d. Change the interest in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the bond prices different?
a.
Price = $1,000 x 0.5584 + $1,000 x 7.5% x 7.3601
Price = $558.40 + $552.01
Price = $1,110.41
b.
Price = $1,000 x 0.7921 + $1,000 x 7.5% x 3.4651
Price = $792.10 + $259.88
Price = $1,051.98
Bond prices are still different because the time period remains different.
4. Black stone, inc. has a five-year

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