Financial Management Unit Three: Bonds, Interest Rates, and Risk and Return Assignment[Summary GB 550]

GB550: UNIT THREE ASSIGNMENT GB550: Financial Management Unit Three: Bonds, Interest Rates, and Risk and Return Assignment Faye M. Williams July 24, 2016 This study source was downloaded by from CourseH on 11-25-2021 06:08:37 GMT -06:00 This study resource was shared via CourseH 2 GB550: UNIT THREE ASSIGNMENT Chapter 5 problem, 5-2, p. 226 5-2 (Yield to Maturity for Annual Payments) Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? INT = (Coupon rate)(Par value) = (.10)(1000) = 100 VB = INT [1/rd – 1/rd(1 + rd)N] + M/(1 + rd)N = 100[1/.10 – 1/.10(1 + .10)12] + 1000/(1 + .10)12 = 100[1/.10 – 1/.] + 1000/3. = 100[10 – 3.] + 318.6308 = 100[6.] + 318.6308 = 681.3692 + 318.6308 = $1,000 $850 = $100/ (1 + rd)1 + … + $100/ (1 + rd)12 + $1,000/ (1 + rd)12