Question

Question 29 (1 point) A bond currently trades at $995 on the secondary market. The bond has 7 years until maturity and pays an annual coupon at 6% of face value. The face value of the bond is $1,000. What is the coupon (or current) yield for this bond? (Enter your answers as a decimal rounded to 4 decimal places, not a percentage. For example, enter 0.0843 instead of 8.43%) Your Answer: Answer DView hint for Question 29 Question 30 (1 point) Bavarian Sausage just issued a 9-year 7% coupon bond. The face value of the bond is $1,000 and the bond makes semiannual coupon payments. If the required return (yield to maturity) on the bond is 6%, what is the bond's price? Your Answer:

Answer 1

Question-29

Coupon (or Current) Yield of the Bond = Annual Coupon Amount / Current Market Price of the Bond

= ($1,000 x 6%) / $995

= $60 / $995

= 0.0603

Question-30

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value

Face Value of the Bond = $1,000

Semi-annual Coupon Amount = $35 [$1,000 x 7% x ½]

Semi-annual Yield to Maturity = 3% [6% x ½]

Maturity Period = 18 Years [9 Years x 2]

Therefore, the Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $35[PVIFA 3%, 18 Years] + $1,000[PVIF 3%, 18 Years]

= [$35 x 13.75351] + [$1,000 x 0.58739]

= $481.38 + $587.39

= $1,068.77

“Therefore, the Price of the Bond will be $1,068.77”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)ⁿ} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.

-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)ⁿ], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.