Answered: ed a bond 2 years ago for $985.43.…

ed a bond 2 years ago for $985.43. Today the bond is priced at 794.27, and it matures in 6 years. The bond provides a 9% co

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 6FPE

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

You purchased a bond 2 years ago for $985.43. Today the bond is priced at 794.27, and it matures in 6 years. The bond provides a 9% coupon and pays interest semi-annually. Assuming a par value of $1,000, what is the Yield to Maturity on this bond?

Question 2 options:

	13.64%
	15.20%
	14.21%
	15.63%
	13.07%

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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Step 1 We know that YTM of the bond is the discount rate that make the current price equal to

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Step 2 We can find YTM here y on excel

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Step 3= Put =irr(select all the no from -794.27, to 1045 , and enter

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