Question

a. Springfield Nuclear Energy Inc. bonds are currently trading at $1,775.16. The bonds have a face value of $1,000​, a coupon rate of 10.5​% with coupons paid​ annually, and they mature in 25 years. What is the yield to maturity of the​ bonds?

b. Consider an annual coupon bond with a face value of $100​,12 years to​ maturity, and a price of $76. The coupon rate on the bond is 6​%. If you can reinvest coupons at a rate of 5​% per​ annum, then how much money do you have if you hold the bond to maturity?

Answer 1

(a) Bond Price = $ 1775.16, Face Value = $ 1000, Coupon Rate = 10.5 % payable annually, Tenure = 25 years

Annual Coupon = 0.105 x 1000 = $ 105

Let the yield to maturity be Y

Therefore, 1775.16 = 105 x (1/Y) x [1-{1/(1+Y)^(25)}] + 1000 / (1+Y)^(25)

Using EXCEL's Goal Seek Function/ hit and trial method/ a financial calculator to solve the above equation, we get:

Y = 0.050000344 or 5.0000344 % ~ 5 %

NOTE: Please raise a separate query for the solution to second unrelated question, as one query is restricted to the solution of only one complete question with up to four sub-parts.