Question

help solve please! how to solve with a calculator would be helpful

1. As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, wil mature in eight years, and have a coupon rate of 9.5% on a face value of $1,000. Currently, the bonds are selling for $872. a. If you required return is 11% for bonds in this risk class, what is the highest price you would be willing to pay?

Answer 1

a

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =8x2

Bond Price =∑ [(9.5*1000/200)/(1 + 11/200)^k]     +   1000/(1 + 11/200)^8x2

k=1

Bond Price = 921.53

b

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =8x2

872 =∑ [(9.5*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^8x2

k=1

YTM% = 12.04

c

K = Time to callx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTC/2)^k]     +   Call Price/(1 + YTC/2)^Time to callx2

k=1

K =3x2

872 =∑ [(9.5*1000/200)/(1 + YTC/200)^k]     +   1040/(1 + YTC/200)^3x2

k=1

YTC% = 16.14