Question

Missing information on a bond. Your broker faxed to you the following information about two annual coupon bonds that you are considering as a potential investment. Unfortunately, your fax machine is blurring some of the items, and all you can read from the fax on the two different bonds is the following: . Fill in the missing data from the information that the broker sent. What is the price of the IBM coupon bond? $ (Round to the nearest cent.) Data Table (Click on the following icon @ in order to copy its contents into a spreadsheet.) Features Face value (Par) Coupon rate IBM Coupon Bond AOL Coupon Bond $1,000 $1,000 5.5% ? 11.5% 5.5% 2010 ? $1,263.82 Yield to maturity Years to maturity Price Print Done

Answer 1

IBM

K = N

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

k=1

K =20

Bond Price =∑ [(5.5*1000/100)/(1 + 11.5/100)^k]     +   1000/(1 + 11.5/100)^20

k=1

Bond Price = 537.41

Using Calculator: press buttons "2ND"+"FV" then assign

PMT = Par value * coupon %=1000*5.5/(100)

I/Y =11.5

N =20

FV =1000

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(11.5/(100),20,-5.5*1000/(100),-1000,)

AOL

K = N

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

k=1

K =10

1263.82 =∑ [(Coupon rate*1000/100)/(1 + 5.5/100)^k]     +   1000/(1 + 5.5/100)^10

k=1

Coupon rate% = 9

Using Calculator: press buttons "2ND"+"FV" then assign

PV =-1263.82

I/Y =5.5

N =10

FV =1000

CPT PMT

Using Excel

=PMT(rate,nper,pv,fv,type)/par value

=PMT(5.5/(100),10,-1263.82,1000,)/1000