Question

1:57 Done MBA516 Bonds TYK6120947.. 1 Question 7 Kiss the sky enterprises has bonds on the market making annual payments, with 16 years to maturity, and selling for S870. At this price, the bond yield 7.5%, what must the coupon rate be on the bonds? Solution: C-6.8% Question 8 A microgates Industries bond has a 10% coupon rate and $1,000 face value. Interest is paid semi-annually, and the bond has 20 years to maturity. If investors require l 12% yield. what is the bond price value? Solution: P-$849.54 Question 9 What is the price of a zero coupon years and has a face value of$1000 if the discount rate is 5%? bond that matures in 3 Question 10. What is the difference between callable bonds and convertible bonds? P-$863.8376

Answer 1

7)	The price of $870 is the sum of the PVs of the
	following:
	PV of the Face Value of $1000 payable at EOY 16 = 1000/1.075^16 =	$ 314.39
	and
	PV of the 16 coupons to be received, which is = 870-314.39 =	$ 555.61
	So, 555.61 = Coupon*PVIFA(7.5%,16) = Coupon*9.14151
	Coupon = 555.61/9.14151 =	$ 60.8
	Coupon rate = 60.8/1000 =	6.08%
	[The answer should be 6.08% and not 6.8%]
8)	Price of the bond = 1000/1.06^40+50*(1.06^40-1)/(0.06*1.06^40) =	$       849.54
9)	Price of the zero coupon bond = 1000/1.05^3 =	$       863.84
10)	Callable bonds are those bonds on which the
	issuer has a right to buy back the bonds at a
	predetermined price (usually stated as a premium
	on the face value) on a specified date.
	A convertible bond is one which gives the holder
	the right to convert the bond into a specified
	number of shares on a specified date, the terms of
	which are specified at the time of issue.