Log in
Finance
1
answer
0
watching
337
views
9 Mar 2019

EJ Corp bond carries a 9 percent coupon, paid semi-annually. The par value is $1,000, and the bond matures in 12 years. If the bond currently sells for $905.50 (PV), what is its yield to maturity?
Enter PV as a negative number. Calculate equal 24 payments ($1,000*.09/2) and enter.

Remember the last payment is the return of principal plus PMT. Use IRR(cash flows).

Time Payment Periods Cash Flow
Today 0 Pv>= ?
1 ?
2 ?
3 ?
4 ?
5 ?
6 ?
7 ?
8 ?
9 ?
10 ?
11 ?
12 ?
13 ?
14 ?
15 ?
16 ?
17 ?
18 ?
19 ?
20 ?
21 ?
22 ?
23 ?
Add FV to PMT= 24 ?

IRR=> ?

The YTM is 2*IRR===> ?

Watch
1
answer
0
watching
337
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Keith Leannon
Keith LeannonLv2
11 Mar 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

All:

Everyone today has to be concerned about being able to retire comfortably when they keep telling us that Social Security will be bankrupt in 2037, a mere 22 years from now, and that it is an entitlement, not something that we and our employers all paid into since we got our first job.

A retirement planner is attached to this message so you can estimate how much money you will need to save to be able to do the things most retirees want to do when they are no longer working.

Then provide your calculations to the class and make a statement as to what you think and if you can achieve it?

For Week 3, please turn in the answers to the following questions:

1. Define the following terms as they apply to bonds:

a. Face value

b. Maturity date

c. Coupon interest (including coupon interest rate)

d. Current yield

e. Yield to maturity (YTM)

f. Yield to call (YTC)

g. Call premium

2. What are “Zero-coupon” bonds?

3. Suppose you see the following bond price quote in the newspaper:

McDonalds 5.7% 2039……..122.733

What can you tell about this bond from reading the price quote?

4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)?

5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield?

6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)?

7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond’s yield to call (YTC)?

8. (calculating the present value of a bond with semi-annual coupon interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a yield to maturity (YTM) of 4.2%, what should be its price in the bond market (ie, PV)?

9. (calculating the YTM of a bond with semiannual interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a market price of $1,223.92, what is its yield to maturity (YTM)?

10. Define the following terms as they apply to interest rates:

a. The real risk-free rate (r*)

b. The nominal risk-free rate (Rrf)

c. The inflation premium (IP)

d. The default risk premium (DRP)

e. The liquidity premium (LP)

f. The maturity risk premium (MRP)

11. Assume the real risk-free rate is 1%. Assume also that inflation is expected to be 1% in the coming year (year 1), 2% in the next year after that (year 2), and 3% in the year after that (year 3). Assume also that the default risk premium, the liquidity premium, and the maturity risk premium are 0%. Given these conditions, what would be the yield on three-year treasury bonds today?

12. Suppose the First Bank of St Louis was offering the following rates on certificates of deposit (CDs) this week:

Maturity Rate

3 month 1.50%

6 month 1.75%

1 year 2.00%

2 year 2.25%

3 year 2.50%

5 year 2.75%

10 year 3.00%

20 year 3.15%

a. Plot the above data on a yield curve. Label the graph and the axes appropriately.

b. Comment on the implications of this curve to you, as a potential investor in CDs.

End of assignment questions

(see answers to numerical problems on the next page)

Answers to numerical problems:

Question 4: $1,223.92

Question 5: 4.66%

Question 6: 4.2%

Question 7: 3.92%

Question 8: $1,225.44

Question 9: 4.21%

Question 11: 3.0%

Problem 6.35 Loan Amortization
Trevor Diaz is looking to purchase a Mercedes Benz SL600 Roadster which has an invoice price of $121,737 and a total cost of $129,482. Trevor plans to put down $20,000 and will pay the rest by taking on a 5.75 percent five-year loan from Bank of America. What is the monthly payment on this auto loan? Prepare an amortization table using Excel.
a. What is the monthly payment on this auto loan?
Hint: Use the present value of an annuity equation to solve for the monthly payment and then use the PMT financial function to solve: PMT(rate,nper,pv,fv,type). The present value of the annuity is the total amount borrowed. Make sure that all cells are properly formatted.
Cost of new car:
Down payment:
Loan amount:
Interest rate on loan:
Term of loan (years):
Frequency of payment:
Monthly payment on loan:
Monthly payment on loan:
b. Prepare an amortization table using Excel.
Hint: Insert the proper equation in each column and copy down the appropriate number of periods. Calculate total interest, principal, payments, and ending balance using the template below.
Loan amount:
Interest rate on loan:
Term of loan:
Frequency of payment:
Payment# Payment Interest

Principle

 Balance
$0.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
Totals:

Problem 6.35

Loan Amortization

Trevor Diaz is looking to purchase a Mercedes Benz SL600 Roadster which has an invoice price of $121,737 and a total cost of $129,482. Trevor plans to put down $20,000 and will pay the rest by taking on a 5.75 percent five-year loan from Bank of America. What is the monthly payment on this auto loan? Prepare an amortization table using Excel.

a. What is the monthly payment on this auto loan?

Hint: Use the present value of an annuity equation to solve for the monthly payment and then use the PMT financial function to solve: PMT(rate,nper,pv,fv,type). The present value of the annuity is the total amount borrowed. Make sure that all cells are properly formatted.

Cost of new car:

Down payment:

Loan amount:

Interest rate on loan:

Term of loan (years):

Frequency of payment:

Monthly payment on loan:

Monthly payment on loan:

b. Prepare an amortization table using Excel.

Hint: Insert the proper equation in each column and copy down the appropriate number of periods. Calculate total interest, principal, payments, and ending balance using the template below.

Loan amount:

Interest rate on loan:

Term of loan:

Frequency of payment:

Payment#

Payment

Interest

Principle

Balance

$0.00

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

Totals:

Related Documents

FIN 302 Lecture Notes - Lecture 13: Fitch Ratings, Current Yield, Discount Window
greeneel290
FIN 300 Chapter Notes - Chapter 7: United States Treasury Security, Nominal Interest Rate, Sinking Fund
ochreprairie-dog861
FIN 401 Chapter Notes - Chapter 7: Interest Rate Risk, Unsecured Debt, Premium Bond
greensheep522

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in