Question 590

Bond price is the present discounted value of the future cash stream generated by the a bond. It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity.

a) Let us assume a company XYZ ltd has Issued a bond having a face value of k100,000, carrying an annual coupon rate of 7% and maturing in 15 years. The prevailing market rate of interest is 9%. CALCULATE THE PRICE OF THE BOND. 4 marks

b) Let us assume a company ABC ltd has Issued a bond having a face value of k100,000, carrying coupon rate of 8% TO BE PAID SEMI - ANNUALLY and maturing in 5 years. The prevailing market rate of interest is 7%. Required calculate interpret the price of the bond. 4marks

c) Assume that the bonds price is k940 with face value of the bond at k1000. The annual coupon rate is 8%, with maturity of 12years. Based on the information you are required to calculate the approximate yield of maturity. 4marks