Question

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000. Company (Ticker) Coupon Maturity Last Price Last Yield EST $ Vol (000’s) Xenon, Inc. (XIC) 6.300 Jan 15, 2029 94.273 ?? 57,371 Kenny Corp. (KCC) 7.210 Jan 15, 2028 ?? 5.32 48,950 Williams Co. (WICO) ?? Jan 15, 2035 94.825 7.02 43,811 What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $ What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Current yield %

Answer 1

(1)-Amount expect to pay for the Kenny Corp. bond

Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

Face Value = $2,000

Semiannual Coupon Amount = $72.10 [$2,1000 x 7.210% x ½]

Semiannual Yield to Maturity (YTM) = 2.66% [7.210% x ½]

Maturity Years = 24 Years [12 Years x 2]

Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

= $72.10[PVIFA 2.66%, 24 Years] + $2,000[PVIF 2.66%, 24 Years]

= [$72.10 x 17.5728] + [$2,000 x 0.53256]

= $1,267.00 + $1,065.13

= $2,332.13

“Amount expect to pay for the Kenny Corp. bond = $2,332.13”

(2)-Bond’s Current Yield

Bond’s Current Yield = [Annual Coupon Amount / Bond’s Price] x 100

= [($2,000 x 7.210%) / $2,332.13] x 100

= [$144.20 / $2,332.13] x 100

= 6.18%

“Bond’s Current Yield = 6.18%”