XYZ Co. had a bond issue. Coupon 4%, 15 years, market rate is 3%, $1000 par. 1.
Question:
XYZ Co. had a bond issue. Coupon 4%, 15 years, market rate is 3%, $1000 par.
1. What is the Pb (price of the bond) value of the bond today?
2. What if the time period for XYZ was 1 year instead of 15?
3. What if the time period for XYZ was 20 years instead of 15?
4. What if the market rate was 10% instead with 15 years, 4% coupon?
5. Using the 10% market rate, what is the Pb with 1 year to maturity?
6. Why the difference? Or in other words what is the pattern of the value relative to the market rate? Answer this sentence….if the coupon rate is lower than the market rate the value will be (higher or lower?) than par. The amount paid will (decrease or increase) with the number of years to maturity. 7. Using 4% coupon, rd 3%, 15 years, what is Pb (price of the bond) with semi-annual interest?
Q2. ICEE Company’s bond has 8 years remaining to maturity and a coupon rate of 7%. What is the yield to maturity of the bond if the current market price is $1030?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill