Question

Question 35 At maturity, each of the following zero coupon bonds (pure discount bonds) will be worth $1,000. For each bond, fill in the missing quantity in the following table. Assume semi-annual compounding. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 15.25 or 15.25%.) Price Maturity (years) Yield to maturity 8 % $445 $405 7% 15 11%

Answer 1

35)

Bond A:

FV = 1000
PV = 445
Nper = 8 * 2 = 16
Pmt = 0

Yield to maturity can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)*2
=RATE(16,0,-445,1000)*2
= 10.38%

Yield to maturity = 10.38%

Bond B:

FV = 1000
PV = 405
PMT = 0
Rate = 7% / 2 = 3.5%

Number of years can be calculated by using the following excel formula:
=NPER(rate,pmt,pv,fv)/2
=NPER(3.5%,0,-405,1000)/2
= 13.14 years

Maturity (years) = 13.14 years

Bond C:

FV = 1000
PMT = 0
Nper = 15 * 2 = 30
Rate = 11% / 2 = 5.5%

Price can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(5.5%,30,0,-1000)
= $200.64

Price = $200.64

40)
Growth rate = Rate of return - (Dividend / share price)
= 0.17 - ($2.80 / $20)
= 0.17 - 0.14
= 3%

Growth rate = 3.0%