Question

6. A company issued a 25-year bond two years ago at a coupon rate of 5.3 percent. The bond makes semiannual coupon payments. If the bond currently sells for 105 percent of its par value of $1,000, what is the YTM? 7. Bond X makes semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 6.2 percent, and has 13 years to maturity. Bond Y makes semiannual payments. This bond pays a coupon rate of 6.2 percent, has a YTM of 7 percent, and has 13 years to maturity. (a) What is the price of each bond today? (b) If interest rates remain unchanged, what do you expect the prices of these bonds to be one year from now? In 12 years? (c) What conclusion can you draw from your answers to (a) and (c)? 8. Tom borrowed $5,000 with an interest-only, 5-year loan at 5.25 percent. What will the amount of the loan payment be in Year 5 if payments are made annually? 9. Mike borrowed $7,500 at an APR of 6.5 percent. If he repays the loan in one lump sum three years from today, how much will Mike have to repay? 10. You borrowed $285,000 for 30 years to buy a house. The mortgage rate is 4.25 percent, compounded monthly. Suppose that you will pay all of your monthly payments as agreed. Round your answers to the nearest whole cent. (a) How much will you pay each month? (b) How much total interest will you pay on this mortgage? (c) How much of the second payment will be interest? (d) What will the loan balance be at the beginning of the 16th year?

Answer 1

(6) Let the bond's YTM be 2y%, Par Value = $ 1000, Coupon Rate = 5.3 % , Coupon Frequency: Semi-Annual

Semi-Annual Coupon = 0.053 x 0.5 x 1000 = $ 26.5

Remaining Bond Tenure = 25 - 2 = 23 years or 46 half-years

Current Bond Price = 105 % of Par Value = 1.05 x 1000 = $ 1050

Therefore, 1050 = 26.5 x (1/y) x [1-{1/(1+y)^(46)}] + 1000 / (1+y)^(46)

Using EXCEL's Goal Seek Function to solve the above equation, we get:

y = 0.02467 or 2.467 % ~ 2.47 %

YTM = 2 x y = 2 x 2.47 = 4.94 %

NOTE: Please raise separate queries for solutions to the remaining unrelated questions, as one query is restricted to the solution of only one complete question with up to four sub-parts.