The Pennington Corporation issued a new series of bonds on January 1, 1985. The
bonds sold at par value, this is $1,000. The bonds have a 12% percent coupon rate, and
mature on December 31, 2014 (30 years after issue). Coupon payments are due semiannually,
on June 30 and December 31 respectively.
a. What was the Yield to Maturity (YTM) of the Penningtonâs bonds on
January 1, 1985? Although you do not have to make any calculation to
answer this question, use the YTM Excel Function or the I.R.R. excel
function to demonstrate your answer.
b. What was the price of the bond on January 1, 1990, five years later,
assuming that the level of interest rates had fallen to 10%?
c. Find the current yield and capital gains yield on the bond on January 1,
1990, given the price as determined in part b.
d. On July 1, 2005, Penningtonâs bonds sold for $891.64. What was the
YTM at that date?
e. What were the current yield and capital gains yield on July 1, 2005?
The Pennington Corporation issued a new series of bonds on January 1, 1985. The
bonds sold at par value, this is $1,000. The bonds have a 12% percent coupon rate, and
mature on December 31, 2014 (30 years after issue). Coupon payments are due semiannually,
on June 30 and December 31 respectively.
a. What was the Yield to Maturity (YTM) of the Penningtonâs bonds on
January 1, 1985? Although you do not have to make any calculation to
answer this question, use the YTM Excel Function or the I.R.R. excel
function to demonstrate your answer.
b. What was the price of the bond on January 1, 1990, five years later,
assuming that the level of interest rates had fallen to 10%?
c. Find the current yield and capital gains yield on the bond on January 1,
1990, given the price as determined in part b.
d. On July 1, 2005, Penningtonâs bonds sold for $891.64. What was the
YTM at that date?
e. What were the current yield and capital gains yield on July 1, 2005?
