Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Skywalker Safety Inc. has bonds with a par value of one thousand dollars and 28 years to maturity. They are American-style bonds that pay a
Skywalker Safety Inc. has bonds with a par value of one thousand dollars and 28 years to maturity. They are American-style bonds that pay a coupon rate of 3.8%. The next best bonds of similar risk yield 6.7%. At what price should a Skywalker bond trade in secondary markets? Before you calculate the price, will it be a premium, discount, or par bond? Round your answer to the nearest penny. For example, $1,234.567 is 1235.57 Do not enter $, %, or commas. 635.55 margin of error +/- 0.01 To start, it will be a discount bond because the coupon rate is less than the yield-to-maturity. You are solving for the price of an American-style bond, so you must keep in mind that coupons get paid every six months and therefore m equals two. Begin by getting the coupon payment. Multiply $1,000 face value by the coupon rate. That's the total interest paid out annually, but it is broken into two semiannual payments. Divide the total by two to get the six-month coupon payment. Because m =2, multiply the years to maturity by two to arrive at the number of coupon payments in the stream. Because m =2, divide the YTM by two to get the six-month periodic rate. Now use your 3rd row TVM keys to get the price of the bond. years x 2 N YTM% +2 l/Y $1000>
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started