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A few years ago, Spider Web, Inc. issued bonds with a 12.26 percent annual coupon rate,...

A few years ago, Spider Web, Inc. issued bonds with a 12.26 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $700, and will mature in 12 years. What would the annual yield to maturity be on the bond if you purchased the bond today?

Flower Valley Company Bonds have a 13.91 percent coupon rate. Interest is paid semiannually. The bonds have a par value of $1000 and will mature in 10 years from now. Compute the value of Flower Valley Company bonds if investors required rate of return is 8.68 percent.

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Answer #1

2. Use RATE function in EXCEL to find the yield to maturity.

=RATE (nper,pmt,pv,fv,type)

Please remember that the payments are semi annual

nper=12 years*2=24

pmt=semi annual coupon=(coupon rate*face value)/2=(12.26%*1000)/2=122.6/2=61.3

pv=current price=700

fv=face value=1000

=RATE (24,61.3,-700,1000,0)=9.293%

Annual yield to maturity=2*9.293%=18.59%

2. Use PV function in EXCEL to find the price of the bond

=PV(rate,nper,pmt,fv,type)

rate=8.68%/2=4.34%

nper=10 years*2=20

pmt=(13.91%*1000)/2=139.1/2=69.55

fv=1000

=PV(4.34%,20,69.55,1000,0)=$1344.92

Price of the bond=$1344.92

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