Question

can anyone help me to solve these q?please!!

Question 9 Southern Island's bonds have a face value of $1,000, pay coupon annually with an annual coupon of $70 and mature in 15 years. What is the current price of the bond if the yield to maturity is 6.2 percent? Question 10 Trading Game Incorporated has $1,000 face value bonds outstanding with a market price of $1,082.27. The bonds pay coupon semi-annually, mature in 10 years, and have a yield to maturity of 7.8 percent. What is the coupon rate? Question 11 Discuss if the following statement is true or false: Holding everything else constant, long-term to maturity bond is risker that short-term to maturity bond.

Answer 1

9]

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 6.2% (YTM of bonds)

nper = 15 (Years remaining until maturity with 1 coupon payment each year)

pmt = 70 (annual coupon payment)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $1,076.69

А1 : х v f =PV(6.2%,15,70,1000) B C D E Д A 1 | ($1,076.69)!

10]

Semiannual coupon payment is calculated using PV function in Excel :

rate = 7.8%/2 (Semiannual YTM of bonds = Annual YTM / 2)

nper = 20 (Total number of semiannual coupon payments until maturity = years remaining until maturity * 2 = 10 * 2 = 20)

pv = -1082.27 (Current bond price. This is entered with a negative sign because it is a cash outflow to the buyer of the bond)

fv = 1000 (Face value receivable on maturity. This is entered with a positive sign because it is a cash inflow to the bondholder)

PMT is calculated to be $45. This is the semiannual coupon payment. Annual coupon payment = semiannual coupon payment * 2 = $45 * 2 = $90

Coupon rate = Annual coupon payment / face value

Coupon rate = $90 / $1,000

Coupon rate = 9%