Question

1. Madsen Motors's bonds have 6 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 11%, and the yield to maturity is 14%. What is the bond's current market price? Round your answer to the nearest cent.

$___

2. A bond has a $1,000 par value, 8 years to maturity, and a 6% annual coupon and sells for $930.

a. What is its yield to maturity (YTM)? Round your answer to two decimal places.

$____

b. Assume that the yield to maturity remains constant for the next four years. What will the price be 4 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

$____

3. Nesmith Corporation's outstanding bonds have a $1,000 par value, a 7% semiannual coupon, 17 years to maturity, and a 9% YTM. What is the bond's price? Round your answer to the nearest cent.

$____

Answer 1

1.a. n = 6

FV = 1,000

cpn = 1,000 * 0.11 = 110

r = 0.14

Bond price = $883.34

2. a. FV = 1,000

N = 8

PMT = 1,000 * 0.06 = 60

PV = -930

CPT I/Y

I/Y = 7.180487%

Yield to maturity = 7.18%

b. Price after 4 years,

n = 4

r = 7.180487%

FV = 1,000

cpn = 60

Price after 4 years = $960.18

3. FV = 1,000

cpn = 1,000 * 0.07/2 = 35

n = 17 * 2 = 34

r = 9%/2 = 0.045

Bond price = $827.53