question archive A) An 8% annual coupon bond matures in 5 years
A) An 8% annual coupon bond matures in 5 years
Subject:FinancePrice:2.86 Bought3
A) An 8% annual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21%. What is the bond's current price and yield to maturity (YTM)?
B.A Company's stock has just paid dividend of $6.50 and expected to pay dividend of $6.89 next year. The stock's required rate of return is 16%. Calculate the current market price of the stock if the dividend growth rate is constant.
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A
| current yield = coupon rate*par value/current price |
| 8.21=(8/100)*1000/Bond price |
| Bond price = 974.42 |
| K = N |
| Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |
| k=1 |
| K =5 |
| 974.42 =∑ [(8*1000/100)/(1 + YTM/100)^k] + 1000/(1 + YTM/100)^5 |
| k=1 |
| YTM% = 8.65 |
| Using Calculator: press buttons "2ND"+"FV" then assign |
| PV =-974.42 |
| PMT = Par value * coupon %=1000*8/(100) |
| N =5 |
| FV =1000 |
| CPT I/Y |
| Using Excel |
| =RATE(nper,pmt,pv,fv,type,guess) |
| =RATE(5,-8*1000/(100),974.42,-1000,,) |
