Interest and Investing Research Assignment Paper

        Interest and Investing Name Institution Date   Jason Greg is a recent retiree who is interested in investing some of his savings in corporate bonds. Listed below are the bonds he is considering adding to his portfolio.  Bond A has a 7.5% semiannual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 10% semiannual coupon, matures in 12 years, and has a $1,000 face value. Bond C has an 11.5% semiannual coupon, matures in 12 years, and has a $1,000 face value. 
Each bond has a YTM of 10%. 
a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, discount or par. Bond A Coupon rate 7.5% Yield to maturity =10% 

• Coupon rate< YTM and the bond is trading at a discount

 Bond B Coupon rate 10% Yield to maturity =10% 

• Coupon rate = Yield to maturity =10%   and bond is selling at par

Bond C Coupon rate 11.5% Yield to maturity =10% 

• Coupon rate >Yield to maturity and bond is selling at premium.

   
b. Calculate the price of each of these bonds. Bond A Bo= 75/2[1-(1+.075/2)-^2*12)/ 0.075/2)]+1000/(1+0.075/2)^2*12= $ 827.52 Bond B 100/2[1-(1+.1/2)-^2*12)/ 0.1/2)] +1000/ (1+0.1/2)^2*12= $1,000 Bond C Bo=115/ 2[1-(1+.115/2)-^2*12)/ 0.115/2)] +1000/ (1+115/2)^2*12= $ 1103.49
Premium price have a greater value than the face value ($ 1,000) and the effective rate is set at a premium (Albrecht, Stice & Stice, 2010). c. Calculate the current yield for each bond. Bond A

• Face value=$1,000
• Payments= 7.5%*1000=75
• N=12*2=24
• Market price= 827.52
• Current yield =75/ $ 827.52= 0.0906=9.06%

The current yield is the annual coupon divided by the current bond price and the annual coupon in this case is 7.5% of $1,000 being $75 Bond B

• Face value=$1,000
• Payments= 10%*1000=100
• Market price=1,000
• Current yield =100/ 1000= 10%

The annual coupon is 105 of $ 1,000 being $ 100 and since the markets price is $ 1,000 the current yield is 10%. Bond C

• Face value=$1,000
• Payments= 11.5%*1000=115
• Market price= $ 903.66
• Current yield =115/ $ 1103.49= 0.1042= 10.42%
• The coupon payment is .115 of $ 1,000 and since the current market  price $ 1103.49 the current yield is 10.42%
  d. If the yield to maturity for each bond remains at 9%, what will be the price of each bond 1 year from now? 
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