Finance questions....

Business & Finance
Tutor: None Selected Time limit: 1 Day

1.Sadik Inc.'s bonds currently sell for $1,270 and have a par value of $1,000.  They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100.  What is their yield to call (YTC)?

2.A 25-year, $1,000 par value bond has an 8.5% annual payment coupon.  The bond currently sells for $900.  If the yield to maturity remains at its current rate, what will the price be 5 years from now?

Jul 12th, 2015

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A 25-year, $1,000 par value bond has an 8.5% annual payment coupon.  The bond currently sells for $900.  If the yield to maturity remains at its current rate, what will the price be 5 years from now?

 First you have to calculate the current yield to maturity. You do this by solving for the RATE function using the following criteria: 

Number of Periods = 25 
Annual Payment = $85 ($1,000 X 8.5%) 
Future Value $1,000 
Present Value -$875 

The RATE calculates to 9.863% 

Now calculate the Present Value using this criteria 

Future Value $1,000 
Number of Periods = 20 (25 - 5) 
Annual Payment = $85 ($1,000 X 8.5%) 
RATE = 9.863% 

The Present Value calculates to -$882.90 

So in five years, the bond will sell for $882.90



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Jul 12th, 2015

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