Reference no: EM132726717
Problem - The Pennington Corporation issued a new series of bonds on January 1, 1997. The bonds were sold at par ($1,000), had a 12% coupon, and will mature in 30 years on December 31, 2026. Coupon payments are made semiannually (on June 30 and December 31).
a. What was the YTM on the date the bonds were issued?
b. What was the price of the bonds on January 1, 2002 (5 years later), assuming that interest rates had fallen to 10%?
c. Find the current yield, capital gains yield, and total yield on January 1, 2002, given the price as determined in Part b.
d. Suppose you purchase a Pennington bond for $916.42 on July 1, 2020 (6.5 years before maturity). What are the YTM, the current yield, and the capital gains yield for that date?
e. Suppose instead that you purchase a Pennington bond on March 1, 2020, three months earlier than in Part d. If the going rate for a bond of this risk is 15.5%, how large a check must you write to complete the transaction? (Hint: Don't forget the accrued interest.)
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