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) 7.200 Jan 15, 2038 94.363 ?? 57,380 Kenny Corp. (KCC) 7.300 Jan 15, 2037 ?? 5.50 48,959 Williams Co. (WICO) ?? Jan 15, 2044 94.915 7.20 43,820

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.)

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.)

Answer 1

Par Value = $2,000

Annual Coupon Rate = 7.300%
Annual Coupon = 7.300% * $2,000
Annual Coupon = $146

Semiannual Coupon = Annual Coupon / 2
Semiannual Coupon = $146 / 2
Semiannual Coupon = $73

Time to Maturity = 21 years
Semiannual Period = 42

Annual YTM = 5.50%
Semiannual YTM = 2.75%

Current Price = $73 * PVIFA(2.75%, 42) + $2,000 * PVIF(2.75%, 42)
Current Price = $73 * (1 - (1/1.0275)^42) / 0.0275 + $2,000 * (1/1.0275)^42
Current Price = $73 * 24.726921 + $2,000 * 0.320010
Current Price = $2,445.09

Current Yield = Annual Coupon / Current Price
Current Yield = $146 / $2,445.09
Current Yield = 0.0597 or 5.97%