Question

INTT 204 ASSIGNMENT Q1) What is the price of an annual coupon bond with a coupon rate of 10%, $1,000 face value, and 50 years to maturity, if its yield to maturity is 12%? ($833.91) I Q2) Company X is expected to pay an end-of-year dividend of $10 a share. After the dividend its stock is expected to sell at $110. If the market capitalization rate is 10%, what is the current stock price? (Ans. $109.09) Q3) Consider a 5% annual coupon bond with $1,000 face value and 3 years to maturity. What is the current market price, if yield to maturity is 8%? (Ans. $922.70) Q4) What is the price of an annual coupon bond with a coupon rate of 8%, $1,000 face value, and 10 years to maturity, if its yield to maturity is 9%? ($935.82) Q5) Suppose that a bond, making annual payments with 14 years to maturity and $1000 face value is selling for $950. At this price, the bond yield 7.5%. What must the coupon rate be? (Ans 6.91%) 'azin i SAMSUNG

thank you.

Answer 1

price of coupon = Coupon payment per period * [1-(1+i)^-n]/i + par value/(1+i)^n

i = interest rate per period

n = number of periods

1)

Price = 100 * [1-(1+0.12)^-50]/0.12 + 1000/(1+0.12)^50

= 833.91

2)

expected return = (sell price - buy price + dividend)/buy price

let x be current price

=>

10% = (110 - x + 10)/x

=>

current price x = 120/1.1

= 109.09

3)

Price = 50 * [1-(1+0.08)^-3]/0.08 + 1000/(1+0.08)^3

= 922.70

4)

price = 80 * [1-(1+0.09)^-10]/0.09 + 1000/(1+0.09)^10

= 935.82

5)

950 = coupon payment * [1-(1+0.075)^-14]/0.075 + 1000/(1+0.075)^14

=>

coupon payment = 69.1

coupon rate = coupon payement/face value

= 69.1/1000

= 6.91%