GAMA Co.'s 15-year bonds have an annual coupon rate of 9.5%. Each bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity (YTM) on this investment, what is the maximum price you should be willing to pay for the bond? Is this bond selling at a premium or discount? What will happen to the price of the bond as you get closer to the maturity date?
GAMA Co.'s 15-year bonds have an annual coupon rate of 9.5%. Each bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity (YTM) on this investment, what is the maximum price you should be willing to pay for the bond?
Is this bond selling at a premium or discount?
What will happen to the price of the bond as you get closer to the maturity date?
Please show work in excel
a. Compounding periods per year = Semi Annually = 2
b. Semi-Annual Coupon rate = Annual Coupon rate / Compounding periods per year = 9.50% / 2 = 4.75%
c. Face Value = $1000
d. Number of periods = # of years * Compounding periods = 15 * 2 = 30 periods
e. YTM per period = YTM per annum / Compounding periods per year = 11% / 2 = 5.50%
we are using Excel Formula "PV(RATE,NPER,PMT,FV)" to calculate Maximum price
RATE = YTM per period
NPER = Number of periods
PMT = Semi-Annual Coupon
FV = Maturity value
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