Bond Problems: Work problems 6-1 through 6-6. Put your solutions in Excel with a tab for each problem. 6-1: Intercontinental Baseball Manufacturers has an outstanding bond with a $1,000 face value...

Buner Corporation's outstanding bond has the following characteristics:
Years to maturity 6.0
Coupon rate of interest 8.0%
Face Value: 1,000
If investors require a rate of return equal to 12 percent on similar risk
bonds and interest is paid semiannually, what should be the market price
of Buner's bond?


var :
( ) / int ( ) 12%
int
"12%
Please start with identification of the five iables
l I Y the market erest rate rd
This is the market erest rate to be used for Buner corporation because the
problem says on si
 
- ."
(2) $1,000 : Pr .
,
$1,000.
(3)
milar risk bonds
FV This is Face value Par value incipal
Also note that if problems do not specifu the par value then it is always assumed
to be
INT coupon rate Par
  
  0.08 * 1000 $80.
(4) 6 .
(5) ? :
.
.
,
value
N years
PV remember that finding the value of any asset at the current period is
equivalent to finding its PV
Caution about the semiannual payment
Hence you ha
 


:
) / 2 $80 / 2 $40.
2) / / 2 12% / 2 6%
3) * 2 6* 2 12
ve to convert values as follows
Step l New INT Old INT
Step New I Y Old IIY
Step New N Old N
  
  
  
 
 
   
12
12
Therefore,
1
1
1.06 1
40 1,000
0.06 1.06
40 8.38384 1,000 0.49697
335.3538 496.97
832.32
PV
PV
PV
PV
 
   
    
     
 
 
 










Intercontinental Baseball Manufacturers (IBM) has an outstanding bond
that matures in 10 years. The bond, which pays $25 interest every six
months ($50 per year), is currently selling for $598.55. What is the bond's
yield to maturity?
0
0

2
1000 598.55
25
20
1000 598.55
2
0.05639 5.639%
MV B
Interest
nYTM
MV B
YTM
YTM or











A corporation has an outstanding bond with the following characteristics:
Coupon Interest Rate 6.0%
Interest Payments semiannually
Face Value 1,000
Years to Maturity 8
Current Market Value 902.81
What is the yield to maturity (YTM) for this bond?
* 0.06 *1000 $60.
int - , :
) / 2 $60 / 2 $30.
2) * 2 8* 2 16
30
Annual INT coupon rate face value
Since erests are paid semi annually you have to follow the steps below
Step l New INT Old INT
Step New N Old N
P
  
  
  
1000 16 902.81 /
( * 0.06 * 1000 $60.)
3.823. , .
MT FV N PV CPT I Y
where PMT coupon rate face value
Then you get However the YTM is an annual value Hence you have to multiply
by
 
  
2.
3.823* 2 7.65%YTM  









Suppose Ford Motor Company sold an issue of bonds with a 10 year
maturity, a 1,000 par value, a 10 percent coupon rate, and semiannual
interest payments.
a. Two years after the bonds were issued, the going rate of interest on
bonds such as these fell in 6 percent. At what price would the bonds sell?
10 2 8
compounding is used
N 2 8 2 16.
/ 2...