Question

# 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.

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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