question archive Big Five Construction has outstanding E1,000 face value 8% coupon bonds that make semi-annual payments, and have 14 years remaining to maturity
Big Five Construction has outstanding E1,000 face value 8% coupon bonds that make semi-annual payments, and have 14 years remaining to maturity
Subject:FinancePrice:2.86 Bought3
Big Five Construction has outstanding E1,000 face value 8% coupon bonds that make semi-annual payments, and have 14 years remaining to maturity. If the current price for these bonds is E987.24, what is the annualized yield to maturity? (2 Marks)
2.6 Mr Zulu deposits at the end of each year E2,000.00, E3,000.00, E4,000.00, E5,000.00 and E6,000.00 for five years respectively. What is his series of deposits at the end of five years assuming 6% compound interest? (3 Marks)
2.7 Metro Limited has issued bonds with a face value of E100 which pay a coupon rate of 6% Coupon payments are payable semi-annually. The quoted yields on similar bonds are currently 8% per year. The maturity date is 10 years time. What is the value of each Metro bond? What is the bond's annual effect interest yield? (3 Marks)
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Solution
Answering first question only as per Chegg's guidelines 1.Calculation of annualized yield to maturity(YTM)
YTM=[Annual coupon+(Face value+Current Price)/Years to maturity]/(Face value+Current price)/2
Annual coupon=Face value*Coupon rate
=E1000*8%=E80
YTM=[80+(1000-987.24)/14]/(1000+987.24)/2
=90.9114/993.62
=0.0915 or 9.15%
