Last year, Brian bought a bond for $10,000 that promises to pay him $800 per year. This year, he can buy a bond for $10,000 that
1 answer:
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Answer:
a) YTC 5.895%
b) YTC being call at 1,120 6.6853%
c) we change time and call price 1,170 = 5.33189%
Explanation:
we have to calculate with excel for the PV of the coupon payment and the call price which matches the the
<em><u>First we calculate the price of the bond:</u></em>
C 38.000 1,000 x 7.6% / 2
time 40 (20 years x 2payment per year )
rate 0.033
PV $837.2785
Maturity 1,000.00
time 40.00
rate 0.033
PV 272.89
PV c $837.2785
PV m $272.8897
Total $1,110.1682
Now we solve for the YTC
given a price of 1,110 we receive an annuity of 38 dollars during 7 years and recieve 1,170
we do it in excel:
=PV(A2;14;38)+1,110.17/power(1+A2;28)
the first part is the coupon payment the second maturity
now we solve using goal seek to make this formula worth 1,170 changin a2 which is when we put a rate reference
a) 0.058950255
b)
=PV(A2;14;38)+1,110.17/power(1+A2;28)
we determinate our target as 1,120
0.066853426
c) we change time:
=PV(A2;8;38)+1,110.17/power(1+A2;8)
0.053318904
Answer:
b. 8.225%
Explanation:
In this question, we use the Rate formula which is shown in the spreadsheet.
The NPER represents the time period.
Given that,
Present value = $754.08
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 7.25% ÷ 2 = $36.25
NPER = 9 years × 2 = 18 years
The formula is shown below:
= Rate(NPER,PMT,-PV,FV,type)
The present value come in negative
So, after solving this,
1. The pretax cost of debt is 11.75%
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 11.75% × ( 1 - 0.30)
= 8.225%
