Finance Questions: Bond and Stock Valuation

Posted on 2014-04-11 11:34:00 in Finance by COURTNEY

Bond Valuation:

1.) $1,000, 12% coupon bond pays coupon annually and has 10 years remaining to maturity.

a.) What is today's price (value) if it is bought at a yield to maturity of 10%?

b.) Assuming the required yield to maturity stays constant at 10%, at what price should this bond sell one year hence, i.e., when it has a remaining life of 9 years to maturity?

c.) What should be the price of this bond at maturity (i.e. one second before it matures)? (no need for calculations here)

d.) From your anser to parts a-d, what happened to the bond price over time? That is, did it gradually rise or fall?



2.) a two year bond pays a coupon rate of 10% and has a face value of $1,000. In other words, the bond pays interest of $100 per year and its principal of $1,000 is paid off in year two. If the bond sells for $960, what is its approximate yield to maturing? Hint: This requires some trial and error calculating.

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