**Problem Description:**Crossfade Corporation has a bond with a par value of $2,000 that sells for $1,917.12. The bond has a coupon rate of 7.02 percent and matures in 20 years. If the bond makes semiannual coupon payments, what is the YTM (Yield to Maturity) of the bond?**Multiple Choice Options:**1. 7.05%2. 6.68%3. 5.57%4. 3.71%5. 7.42% This problem requires calculating the bond's Yield to Maturity (YTM), which involves understanding the bond's coupon rate, current selling price, par value, and term to maturity. The YTM represents the internal rate of return on the bond, assuming it is held until maturity and all payments are made as scheduled. The YTM will consider semiannual coupon payments in its calculation.

Solution:-Yield to maturity refers to the annual return earned by bond holder, if the bond is held till maturity.Bond price means the price at which a bond is trading in the market. It is the summation of present value of remaining coupon payments discounted at periodic yield to maturity + present value of redemption value discounted at periodic yield to maturitySo, bond price = Present value of remaining coupon payments discounted at periodic yield to maturity + Present value of redemption value discounted at periodic yield to maturityHere, we have, par value of bond = $2,000Coupon rate = 7.02% payable semi-annuallySo, semi-annual coupon amount = (½ x 7.02)% of $2,000 = $70.20Current bond price = $1,917.12Number of periods i.e. semi-annual periods to maturity = 20 years x 2 = 40So, putting values in above formula, we get,$1,917.12 = [$70.20 / (1+r%)1] + [$70.20 / (1+r%)2] + [$70.20 / (1+r%)3] + ……………………..+ [$70.20 / (1+r%)40] + [1,000 / (1+r%)40] Now, this equation can be solved using following steps in financial calculator:70.20 = PMT2,000 = FV-1,917.12 = PV40 = NCPT I/Y = 3.71043427It means periodic i.e. semi-annual yield to maturity = 3.71043427%So, annual yield to maturity = 3.71043427 x 2 = 7.42086855% i.e. 7.42% (round off)Hence, option e) is correct i.e. 7.42%Option e) is correct i.e. 7.42%

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Crossfade Corporation has a bond with a par value of $2,000 that sells for $1,917.12. The bond has a coupon rate of 7.02 percent and matures in 20 years. If the bond makes semiannual coupon payments, what is the YTM of the bond? Multiple Choice O O о 7.05% 6.68% 5.57% 3.71% 7.42%

Crossfade Corporation has a bond with a par value of $2,000 that sells for $1,917.12. The bond has a coupon rate of 7.02 percent and matures in 20 years. If the bond makes semiannual coupon payments, what is the YTM of the bond? Multiple Choice O O о 7.05% 6.68% 5.57% 3.71% 7.42%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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2. Brown Company bought a new machine 1 year ago for 12 million dollars. At that time the machine was estimated to have a life of 6 years and no salvage value. Annual operating costs are estimated at 20 million dollars. A new machine produced by another company does the same job but with an annual operating cost of only 17 million dollars. This new machine costs $21 million with a 5 year lifespan and no salvage value. The old machine can be sold for 10 million dollars. Straight-line depreciation is used and 40 percent corporate tax. If the cost of capital is 8 percent after taxes, calculate:a). Initial investment costsb). After-tax incremental cash flow.c). NPV of new investment.
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Whatever Incorporated, has a bond outstanding with a coupon rate of 534 percent and semiannual payments. The yield to maturity is 6.7 percent and the bond matures in 18 years. What is the market price of the bond has a par value of $1,000? Multiple Choice O O O O O 100032 180018 186145 $45000 $87618
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The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 9.5% and that the coupon payments are to be made semannually.Assuming the appropriate YTM on the Sisyphean bond is 7.4%, then this bond will trede at A a premium. B. par c. a discount. D. none of the above
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D Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 6 percent, and have four years to maturity. What is the current yield for Bond P and Bond D? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Bond P Bond Current yield 8.15% 4.30 % If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P and Bond D? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))) Bond P Bond D Capital gains yield -2.15 % 1.70 %
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Ordinary bonds issued by PIMCO have a current quoted price of $830.50. The PIMCO bond has a 5.7% annual coupon rate. The YTM = 8.15% and the PIMCO bonds pays coupon twice per year. If the next coupon will be disbursed in exactly 6 months, the PIMCO bond will mature in: a. 5.19 years b. 29.14 years c. 19.96 years d. 20.77 years e. 10.39 years

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