A company has two bonds outstanding. Both bonds have a face value of $1,000 and mature in
Question:
A company has two bonds outstanding. Both bonds have a face value of $1,000 and mature in 12 years.
Bond A will be paying coupons semi-annually at the end of each period over the 12-year period. Coupon rate will be 2.50% per year compounded semi-annually. The yield to maturity is 2.00% per year compounded semi-annually.
For bond B, no coupons will be paid during the first four years. During the subsequent five years, coupons will be paid annually at the end of each year. Coupon rate will be 2.50% per year compounded annually. During the last three years, coupons will be paid annually at the end of each year. Coupon rate will be 1.50% per year compounded annually. The yield to maturity is 2.00% per year compounded annually over the entire 12-year period.
a. Calculate the current price of bond A. Show your calculation.
b. Calculate the current price of bond B. Show your calculation.
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling