Question

6. Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable semiannually. The bonds mature in 6 years, have a face value of $1,000, and a yield to maturity of 8.5 percent. 1). What is the price of the bonds? 2). What is the current yield? 3). What is the capital gains yield? 4). These bonds sell at a. par b. a premium c. a discount

Answer 1

Req 1.
Par value of Bonds				1000
Cash semi annual interest				45
	(1000*9%*6/12)
PVF annuity factor for 12 periods at 4.25%				9.250395
PVF for 12th period at 4.25%				0.606858
Present value of Maturity value				606.858
Present value of Cash interest				416.2678
Price of Bonds				1023.126
Rreq 2.
Current yield:
Semi annual Cash interest				45
Divide: Price of bonds				1023.13
Current yield:				4.40%
Annualised current yield				8.80%
Req 3.
Capital Gain yield:
Purchase price				1023.13
Maturity value				1000
Capital loss				-23.13
Capital Gain yield: (-23.13/1023.13)				-2.26%
Req 4.
b. a premium