Question

Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have...

Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 10 percent and the interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 9 years to maturity.    
  
Compute the price of the bonds based on semiannual analysis.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Price of Bond = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)

Where Cupon Amount = $1,000 * 10% * 1/2

= $50

Why did we multiply 1/2?

- Since compounding is Semi Annual

Redemption Amount = $1,000

r is the Yield to Maturity (YTM)

Yield for 6 months = 12/2

r = 6%

n is the remaining maturity

n = 9*2

n = 18

(Semi Annual Compounding)

Present Value of Annuity Factor (6% ,18) = 10.8276034802

Present Value of Interest Factor (6% ,18) = 0.35034379106

Therefore

Bond Price =$50* 10.8276034802 + $1,000 * 0.35034379106

Bond Price =$541.38017401 + $350.34379106

Bond Price = $891.72396507

Note - For simplicity we can round it up to two decimal places

Bond Price = $891.72

Therefore the bond's price is $891.72

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have...
Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 7 percent and the interest is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 15 years to maturity. Compute the price of the bonds based on semiannual analysis appendix d 7% 15 years 9.447 appendix b I=10% 15 years 0.239
Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have...
Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 10 percent and the interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 15 years to maturity. Compute the price of the bonds based on semiannual analysis. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods....
Smith, Inc. is considering issuing bonds that will mature in 22 years with an annual coupon...
Smith, Inc. is considering issuing bonds that will mature in 22 years with an annual coupon rate of 7 percent. Their par value will be $1,000, and the interest will be paid semiannually. Smith is hoping to get an AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 12 percent. However, Smith is not sure whether the new bonds will receive an AA rating. If they receive an A​ rating, the...
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores....
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 12 percent, which is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 10 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the price of the...
The market price is $1,050 for a 9 -year bond ($1,000 par value) that pays 9...
The market price is $1,050 for a 9 -year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity?
You are called in as a financial analyst to appraise the bonds of Olsen's Clothing Stores....
You are called in as a financial analyst to appraise the bonds of Olsen's Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 9 percent, whih is paid semiannually. The yield to maturity on the bonds is 8 percent annual interest. There are 15 years to maturity. Use appendix B and Appendix D for an approximate answer but calulate your final answer using the formula and finanial calculator methods. a. Compute the price of the...
 The market price is ​$725 for a 12 -year bond ($1,000 par​ value) that pays 12...
 The market price is ​$725 for a 12 -year bond ($1,000 par​ value) that pays 12 percent annual​ interest, but makes interest payments on a semiannual basis ​(6 percent​ semiannually). What is the​ bond's yield to​ maturity? The​ bond's yield to maturity is?. (Round to two decimal​ places.)
??(Yield to? maturity)?The market price is $ 700 for a 10 year bond ($1,000 par value)...
??(Yield to? maturity)?The market price is $ 700 for a 10 year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis ?(4.5 percent semiannually). What is the? bond's yield to? maturity? The? bond's yield to maturity is___% (Round to two decimal places.)
​(Yield to​ maturity)  The market price is ​$775 for a 16​-year bond ​($1,000 par​ value) that...
​(Yield to​ maturity)  The market price is ​$775 for a 16​-year bond ​($1,000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 percent​ semiannually). What is the​ bond's yield to​ maturity?
ou are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores....
ou are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 9 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 25 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the price of the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT