Primson Corp has floating rate notes outstanding that pay semi-annually and will mature in 4 years. The interest ra...

Question

Question

Answer 1

Answer #1

Let, the Semi annual equivalent YTM = x

Hence, (1+x)^2-1=5%

or, x= 2.47%

Now, Below is the cash flow for the above bond:

Semi-Annual	Coupon Payment	Prinicipal Payment	Present Value (Cash Flow/(1+Interest Rate)^Period)
1	20.00	-	19.52
2	20.00	-	19.05
3	23.75	-	22.07
4	23.75	-	21.54
5	23.75	-	21.02
6	23.75	-	20.52
7	23.75	-	20.02
8	23.75	1,000.00	842.24
		Total	985.98

Hence, the maximum price you are willing to pay is $985.98

Answer 2

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