Question
Please Answer in Word Doc All the coupon rates are annual. To get the semi-annual coupons, you need to use half of the coupon rate.
Please Answer in Word Doc
All the coupon rates are annual. To get the semi-annual coupons, you need to use half of the coupon rate. By default, par value is $1,000 and coupons are paid semi-annually
Johnson and Johnson (JNJ), rated AAA by S&P, issues an 8-year $1000 par value bond that pays semi- annual coupons. Coupon rate is 3.2%. The bond is priced at $1096.59.
At the same time Valero Corporation (rated BBB by S&P) issues a similar bond with same maturity, par value, and coupon rate and frequency. The BBB-AAA spread is 90 basis points. Find the bond price of Valero Corporation.
[Hint: First find the semi-annual yield of the JNJ bond. Then annualize the yield. Using the spread, find out the annualized yield of Valero bond. From which you can calculate the semi-annual yield of the Valero bond. Now, find the price of the Valero bond.]
Thanks!
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