Answer:
A.) $1,152.12
B.) $92.12
C.) $424.00
Explanation:
Given
period (t) = 15 years
Coupon rate = 12%
Rate (r) = 10%
Par value = $1000
Purchase price = $1060
A.) Current price of bond :
Price = Coupon payment × [(1 - (1 + r)^-t) /r] + [par value / (1+r)^t]
Coupon payment = 12% × 1000 = $120
Plugging our values
Price = 120 × [(1-(1+0.1)^-15)/0.1] + [1000/1.1^15]
Price = $1,152.12
B.) Dollar profit on bond
Dollar profit = Current price - Purchase price
Dollar profit = $1,152.12 - $1060 = $92.12
C.)Amount paid in cash
40% of purchase amount was paid in cash
0.4 × 1060 = $424.00
Answer:
a) $1,153.72
b) $93.72
c) $424
Explanation:
Given:
Original bond was issued at 12%
YTM = 10%
Years left, N = 15 years.
a) The current price of bond:
Using Excel function, we have:
=PV(10%/2,2*15,-12%*1000/2,-1000)
= $1153.72
The current price of bond is $1,153.72
b) Dollar profit based on bond's current price will be calculated as:
Bond's current price - purchase price
= $1,153.72 - $1,060
= $93.72
Dollar profit = $93.72
c) The purchase price of $1,060 Ms. Bright paid in cash will be:
$1,060 * 40%
= $424
