Fin 305 ACTUAL EXAM 2 WITH COMPLETE QUESTIONS AND CORRECT
DETAILED ANSWERS\ACTUAL EXAM COMPLETE QUESTIONS AND
CORRECT DETAILED ANSWERS (100% CORRECT VERIFIED
SOLUTIONS) A NEW UPDATED VERSION |ALREADY GRADED A+
Martin Software has 11.2 percent coupon bonds on the market with 20 years to
maturity. The bonds make semiannual payments and currently sell for
108.4 percent of par?
NO SOLVING FOR YTM
YTM:
N=40 ------ >(20 x 2=40)
FV=1000 (par)
PV=-1084 ------ >(1.084 x 1000=1084)
PMT=56 ------ >(11.2 x 100=112/2=56)
I/Y=? -- >5.1035
YTM= 10.21% ------>(5.1035 x 2 = 10.21)
Effective Annual Yield=10.47%
(1-.051035)^2 = 1.1047
1.1047 -1 = .1047 ---------> 10.47%
Current Yield: 10.33%
11.2 x 100 = 112
112/1084= 10.33%
,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
1. What is the current yield for bond P and bond D?
2. If interest rates remain unchanged, what is the expected capital gains
yield over the next year for bond P and bond D?
Bond P:
N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.95
1 year later (1 period closer to maturity)
N=3, I/Y=6, PMT=90, FV=1000, PV=?--->1080.19
Change in price=$23.76 Current
yield=8.15% (90/1103.95)
Cap Gain/Loss= - 2.15% (23.76/1103.95)
Total Return = 6%
Bond D:
N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.70
1 year later:
N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54
Change in price=$15.8393
Current Yield=4.3%
Cap Gain/Loss=1.7%
Total Return=2.6%
,Exam
Exam
Bond Features
Face/Par
Value Coupon
Date Maturity
Date YTM
Frequency of PMT
Coupon pmt= C= c x face value/m
Bonds
BV=Bond Value
CY=Current Yield
CGY=Capital Gains
Yield C=Coupon
payment
, Equations
BVo=(c/r)(1-1/(1+r)^t) + Face Value/(1+r)^t
ytmt=Cyt + CGyt
Cyt=Ct/BVt
CGy=((BVt-1)/(BVt)) -1
Other stuff
Optional Bond features (Call provision, Convertible, Collateral,
seniority, s fund)
DETAILED ANSWERS\ACTUAL EXAM COMPLETE QUESTIONS AND
CORRECT DETAILED ANSWERS (100% CORRECT VERIFIED
SOLUTIONS) A NEW UPDATED VERSION |ALREADY GRADED A+
Martin Software has 11.2 percent coupon bonds on the market with 20 years to
maturity. The bonds make semiannual payments and currently sell for
108.4 percent of par?
NO SOLVING FOR YTM
YTM:
N=40 ------ >(20 x 2=40)
FV=1000 (par)
PV=-1084 ------ >(1.084 x 1000=1084)
PMT=56 ------ >(11.2 x 100=112/2=56)
I/Y=? -- >5.1035
YTM= 10.21% ------>(5.1035 x 2 = 10.21)
Effective Annual Yield=10.47%
(1-.051035)^2 = 1.1047
1.1047 -1 = .1047 ---------> 10.47%
Current Yield: 10.33%
11.2 x 100 = 112
112/1084= 10.33%
,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
1. What is the current yield for bond P and bond D?
2. If interest rates remain unchanged, what is the expected capital gains
yield over the next year for bond P and bond D?
Bond P:
N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.95
1 year later (1 period closer to maturity)
N=3, I/Y=6, PMT=90, FV=1000, PV=?--->1080.19
Change in price=$23.76 Current
yield=8.15% (90/1103.95)
Cap Gain/Loss= - 2.15% (23.76/1103.95)
Total Return = 6%
Bond D:
N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.70
1 year later:
N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54
Change in price=$15.8393
Current Yield=4.3%
Cap Gain/Loss=1.7%
Total Return=2.6%
,Exam
Exam
Bond Features
Face/Par
Value Coupon
Date Maturity
Date YTM
Frequency of PMT
Coupon pmt= C= c x face value/m
Bonds
BV=Bond Value
CY=Current Yield
CGY=Capital Gains
Yield C=Coupon
payment
, Equations
BVo=(c/r)(1-1/(1+r)^t) + Face Value/(1+r)^t
ytmt=Cyt + CGyt
Cyt=Ct/BVt
CGy=((BVt-1)/(BVt)) -1
Other stuff
Optional Bond features (Call provision, Convertible, Collateral,
seniority, s fund)
