Question

E F 9b-2 The seven-year, $1,000 par value bonds of the Quist Mountain Mist Beverage Co. pay 9.0 percent interest (assume semi-annual payments). the market's required yield to maturity on a comparable-risk bond is 7 percent. The current price for the bond is $1,100. a. Determine the Yield to Maturity. b. What is the value of the bond to you given the yield to maturity on a comparable-risk bond? c. Should you purchase the bond at the current market price? Par Value Coupon Rate Yrs to Maturity Required Rate of Return Valve of Bond YTM PV (price) Purchaase? 9h- 19h- 2 9b-395-4 Select Check Figures

Answer 1

H22 E F H I J K L M Particulars Par Value (FV) Coupon Rate (C) Years (N) Value of Bond (MV) Number of Compounding (T) Coupon Payment (Semi-Annual) 1,000 9% 7 -1100 2 45 1. The Coupon will be [Par Value * Coupon]/Number of Compounding 2. Nper will be Number of Years * Number of Compounding 3. MV will be Nrgative as this is the time that has to be paid. Part A) Yield To Maturity (YTM) [Semi-Annual] Yield to Maturity Annually 3.579% 7%

3. MV will be Nrgative as this is the time that has to be paid. 3.579% Part A) Yield To Maturity (YTM) [Semi-Annual] Yield to Maturity Annually Part B) Years The price of bond should be the price at which PV by discounting factor should be 0. Cash flow (A) PV Factor (B) Present value (A*B) O Coupon payment 0.934579439 84.11214953 0.873438728 78.60948554 0.816297877 73.46680892 0.762895212 68.66056908 0.712986179 64.16875615 0.666342224 59.97080014 1090 0.622749742 678.7972187 Total Present value 1107.785788 lalui The Present Value of All the cash flows is $1107.78788. Part C) Explanation: Since the present value of all cash flow is 11007.78 and the price prevailing in maket is 1100. We should purchase the bond. Sheet1 Ready @ U - - + 100%

D31 1000 2 Particulars 3 Par Value (FV) 4 Coupon Rate (C) 5 Years (N) 6 Value of Bond (MV) 7 Number of Compounding (T) 8 Coupon Payment (Semi-Annual) -1100 =(E3*E4)/E7 14 13 Part A) Yield To Maturity (YTM) [Semi-Annual] =RATE(E5*E7, E8,E6,E3) Yield to Maturity Annually =E13*2 15 16 Part B) The price of bond should be the price at which PV by discounting factor should be 0. 18 Years Cash flow (A) PV Factor (B) Present value (A*B) 19 0 Coupon payment =1/1.07^D19 20 1 =1/1.07^D20 =E20*F20 21 2 =1/1.07^D21 =E21*F21 22 3 =1/1.07^D22 =E22*F22 234 1=1/1.07^D23 =E23*F23 Sheet1 Ready 2 - 100%

D31 10 13 Part A) Yield To Maturity (YTM) (Semi-Annual] |=RATE(E5*E7, E8, E6,E3) Yield to Maturity Annually =E13*2 15 16 Part B) 17 The price of bond should be the price at which PV by discounting factor should be 0. 18 Years Cash flow (A) PV Factor (B) Present value (A*B) 19 0 Coupon payment =1/1.07^D19 20 1 =1/1.07^D20 =E20*F20 21 2 =1/1.07^D21 =E21*F21 =1/1.07^D22 =E22*F22 23 4 =1/1.07^D23 =E23*F23 =1/1.07^D24 =E24*F24 =1/1.07^D25 =E25*F25 =1/1.07^D26 =E26*F26 Total Present value =SUM(G20:626) Sheet1 Ready - -_ _ + 100%