Question

Missing information on a bond. Your broker faxed to you the following information about two quarterlyquarterly...

Missing information on a

bond.

Your broker faxed to you the following information about two

quarterlyquarterly

coupon

LOADING...

bonds that you are considering as a potential investment.​ Unfortunately, your fax machine is blurring some of the​ items, and all you can read from the fax on the two different bonds is the​ following:

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. Fill in the missing data from the information that the broker sent.

What is the price of the IBM coupon​ bond?

(Click on the following icon

  

in order to copy its contents into a​ spreadsheet.)

  Features

IBM Coupon Bond

AOL Coupon Bond

  Face value ​(Par

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​)

5,000

1,000

  Coupon rate

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8.5​%

​?

  Yield to maturity

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9.5​%

11.5​%

  Years to maturity

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20

30

  Price

​?

​537.68

Homework Answers

Answer #1

Calculation of price of IBM coupon bond:
FV = 5000
PMT = 5000 * 8.5% = 425
Rate = 9.5%
Nper = 20

Price of the bond can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(9.5%,20,-425,-5000)
= $4,559.38

Price of IBM coupon bond = $4,559.38


Calculation of coupon rate:
FV = 1000
Rate = 11.5%
Nper = 30
PV = 537.68

Coupon payment can be calculated by using the following excel formula:
=PMT(rate,nper,pv,fv)
=PMT(11.5%,30,-537.68,1000)
= $59.72

Coupon rate = coupon payment / face value
= $59.72 / 1000
= 5.97%

Coupon rate of AOL coupon bond = 5.97%

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