Question

Fill in the missing information. Your broker faxed to you the following information about two semiannual coupon bonds that you are considering as a potential investment.â Unfortunately, your fax machine is blurring some of theâ items, and all you can read from the fax on the two different bonds is theâ following:

Features IBM Coupon Bond AOL Coupon Bond
Face value (Par) $5,000 $5,000
Coupon Rate 9.5% ?
Yield to maturity 6.5% 5.5%
Years to maturity 15 30
Price ? $8,302.28

Answer 1

Answer:

Filling the missing information:

Features          IBM Coupon Bond    AOL Coupon Bond

Face value (Par)           $5,000                     $5,000

Coupon Rate                     9.5%                      12.8%

Yield to maturity                6.5%                       5.5%

Years to maturity              15                           30

Price                            $6,410.40                  $8,302.28

Explanation:

a) Data and Calculations:

Features          IBM Coupon Bond    AOL Coupon Bond

Face value (Par)           $5,000                     $5,000

Coupon Rate                     9.5%                              ?

Yield to maturity                6.5%                       5.5%

Years to maturity              15                           30

Price                                    ?                        $8,302.28

Features          IBM Coupon Bond    AOL Coupon Bond

Face value (Par)           $5,000                     $5,000

Coupon Rate                     9.5%                      12.8% ($640/$5,000 * 100)

Yield to maturity                6.5%                       5.5%

Years to maturity              15                           30

Price                            $6,410.40                  $8,302.28

Price of IBM Coupon Bond:

N (# of periods)  15

I/Y (Interest per year)  6.5

PMT (Periodic Payment)  475

FV (Future Value)  5000

Results

PV = $6,410.40

Sum of all periodic payments $7,125.00

Total Interest $5,714.60

Coupon interest rate of AOL Bond:

N (# of periods)  30

I/Y (Interest per year)  5.5

PV (Present Value)  8302.28

FV (Future Value)  5000

Results

PMT = $640.27

Sum of all periodic payments $-19,208.06

Total Interest $5,905.78

Coupon interest rate = 12.8% ($640/$5,000 * 100)