Scribd
Upload
5 views6 pages

Bond Valuation and Yields Explained

The document discusses bond valuation with semiannual payments, providing examples of calculating bond prices, yield to maturity (YTM), yield to call (YTC), and current yield. It includes specific calculations for Renfro Rentals' bonds, Thatcher Corporation's callable bonds, and a bond maturing in 7 years. Key results include a bond price of $1,085.80, YTM of 6.62%, YTC of 6.49%, and a current yield of 10.78%.

Uploaded by

ballerinal3iscuit
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
5 views6 pages

Bond Valuation and Yields Explained

The document discusses bond valuation with semiannual payments, providing examples of calculating bond prices, yield to maturity (YTM), yield to call (YTC), and current yield. It includes specific calculations for Renfro Rentals' bonds, Thatcher Corporation's callable bonds, and a bond maturing in 7 years. Key results include a bond price of $1,085.80, YTM of 6.62%, YTC of 6.49%, and a current yield of 10.78%.

Uploaded by

ballerinal3iscuit
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

4-7.

Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that
have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a
face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
The problem asks you to find the price of a bond,
given the following facts:

N = 16; I/YR = 8.5/2 = 4.25; PMT = 50; FV = 1000.

With a financial calculator, solve for PV = $1,085.80


4-8. Yield to Maturity and Call with Semiannual Payments Thatcher Corporation's
bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8%
coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are
callable in 5 years at a call price of $1,050. What is their yield to maturity? What is
their yield to call?
With your financial calculator, enter the following to
find YTM:

N = 10  2 = 20; PV = -1100; PMT = 0.08/2  1,000 =


40; FV = 1000; I/YR = YTM = ?
YTM = 3.31%  2 = 6.62%.

With your financial calculator, enter the following to


find YTC:

N = 5  2 = 10; PV = -1100; PMT = 0.08/2  1,000 = 40;


FV = 1050; I/YR = YTC = ?
YTC = 3.24%  2 = 6.49%.
4-14. Current Yield with Semiannual Payments A bond that matures in 7
years sells for $1,020. The bond has a face value of $1,000 and a yield
to maturity of 10.5883%. The bond pays coupons semiannually. What is
the bond's current yield?
The problem asks you to solve for the current yield, given the
following facts: N = 14, I/YR = 10.5883/2 = 5.2942, PV = −1020, and
FV = 1000. In order to solve for the current yield we need to find
PMT. With a financial calculator, we find PMT = $55.00. However,
because the bond is a semiannual coupon bond this amount needs
to be multiplied by 2 to obtain the annual interest payment:
$55.00(2) = $110.00. Finally, find the current yield as follows:

Current yield = Annual interest/Current Price = $110/$1,020 =


10.78%.

You might also like