Computation of effective annual yield and bond value

Assignment Help Finance Basics

Reference no: EM1310169

Computation of effective annual yield, bond value.

You have just purchased a newly issued Company bond at par. This 5-year bond pays $60 in interest semi-annually. You are also considering the purchase of another Company that pays $30 in semi-annual interest payments and has six years remaining before maturity. This bond has a face value of $1,000.

a) What is the yield of the 5-year bond expressed as an effective annual yield?

b) Assume that the 5-year bond and the 6-year bond have the same yield. What should you be willing to pay for the 6-year bond?

c) How would your answer to part b) change if the 5-year bond pays $40 in semi-annual interest instead of $60? Assume that the 5-year bond paying $40 semi-annually is purchased at par.

Reference no: EM1310169

Questions Cloud

Eveluate the margin of safety - percentage of sales : Cost-volume-profit analysis cannot be used if which of the following occurs and eveluate the margin of safety expressed as a percentage of sales?

Find the maximum magnitude of the acceleration : A baseball pitcher can throw a ball with a speed of 70m/s. He is in the back of a pickup truck that is driving away from you. He throws the ball in the direction, and it floats toward you at a lazy 10 m/s.

Find the distance between the train and the musician : Suppose a train engineer is climbing a vertical ladder at a speed of 0.2m/s while the train is slowly coasting east at 0.70 m/s. Find out the vector of the engineer relative to the ground in rectangular notation.

Computing shop-s returns-allowances and cost of goods sold : "The Happy Auto shop has following annual information: gross sales= $700,000; net sales= $696,000; and gross profit= $448,000. What are the shop's returns and allowances and cost of goods sold?"

Computation of effective annual yield and bond value : Computation of effective annual yield and bond value and What is the yield of the 5-year bond expressed as an effective annual yield?

What would be the budgeted production for march : What would be the effect on income from operations if absorption costing is used rather than variable costing and What would be the budgeted production for March

What is the ball''s maximum height : A child and sled with the combined mass of 60.4 kg slide down a frictionless hill. If the sled starts from rest and has a speed of 13.4 m/s at the bottom, what is the height of the hill.

Residual income and return on investment : Explain why a firm like Grate Care might decide to use both residual income and return on investment as measures of performance.

What is the velocity of the rocket : A 0.34 kg iron horseshoe that is initially at 616 ?C is dropped into a bucket containing 25 kg of water at 28 ?C. What is the final equilibrium temperature? Avoid any energy transfer to or from the surroundings and assume the specific heat of iron is..

User Account

All Pages