Reference no: EM132977779
Question - Answer all questions and show workings
The Pennington Corporation issued a new series of bonds on January 1, 1987. The bonds were sold at par ($1,000), had a 12% coupon, and matured in 30 years on December 31, 2016. Coupon payments are made semiannually (on June 30 and December 31).
a. What was the Yield to Maturity (YTM) on the date the bonds were issued?
b. What was the price of the bonds on January 1, 1992 (5 years later) assuming that interest rates had fallen to 10%?
c. On July 1, 2010 (6.5 years before maturity), Pennington's bonds sold for $916.42. What are the YTM and the current yield for that date?
d. How does one determine the value of any asset whose value is based on expected future cash flows?
e. How is the value of a bond determined? What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%?
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