Question

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2019. The bonds have a par value of $2,000 and semiannual coupons.

Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	EST $ Vol (000’s)
Xenon, Inc. (XIC)	7.300	Jan 15, 2042	94.373	??	57,381
Kenny Corp. (KCC)	7.310	Jan 15, 2041	??	5.52	48,960
Williams Co. (WICO)	??	Jan 15, 2048	94.925	7.22	43,821

a.	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.)
b.	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

Answer a.

Par Value = $2,000
Annual Coupon Rate = 7.310%

Semiannual Coupon Rate = 7.310% / 2
Semiannual Coupon Rate = 3.655%

Semiannual Coupon = 3.655% * $2,000
Semiannual Coupon = $73.10

Time to Maturity = 22 years
Semiannual Period = 44

Annual YTM = 5.520%
Semiannual YTM = 2.760%

Current Price = $73.10 * PVIFA(2.760%, 44) + $2,000 * PVIF(2.760%, 44)
Current Price = $73.10 * (1 - (1/1.02760)^44) / 0.02760 + $2,000 * (1/1.02760)^44
Current Price = $73.10 * 25.296584 + $2,000 * 0.301814
Current Price = $2,452.81

Answer b.

Annual Coupon = 2 * Semiannual Coupon
Annual Coupon = 2 * $73.10
Annual Coupon = $146.20

Current Yield = Annual Coupon / Current Price
Current Yield = $146.20 / $2,452.81
Current Yield = 0.0596 or 5.96%