Bond Yields [LO2] Seether Co. wants to issue new 20-year bonds for some much_x0002_needed expansion projects.

The co
currently has 8 percent coupon bonds on the market that sell for $930, make semiannual payments, and mature in 20 year
coupon rate should the company set on its new bonds if it wants them to sell at par?
nT
C
P s

C 8% 
s 1y 
1   1 
Market price 930  n 
M=PV 1000
 
T 20  
n 2 C  1 
 1 nT
YTM 8.75% y  y 
   1  
n  n 
Settlement date 1/1/2000
n2
maturity date 1/1/2020
Rate of new bond  
 
C  1 
 1 2T
y  y 
 
2 1   
 2 
eeded expansion projects. The company
payments, and mature in 20 years. What
em to sell at par?
nT
C M
 y
s

y
nT
1 
1   1  
 n  n
 
 
C  1  M
1 nT nT
y  y   y
 
n 1    1  
 n   n
2
 
 
C  1  M
1 2T 2T
y  y   y
 
2 1    1  
 2   2
C% 10%
T 20
M 1000 nT
C M
P 
P market 1197.93 y
s

s 1 
YTM 8% 1   1 
 n 
Settlement  
Maturity  
C  1 
 1
y  nT
y 
P (valuation)    1   
n  n 
n2
 
Goal seek  
C  1 
 1
y  2T
y 
   1   
2  2 
nT
C M
 y
s

y
nT
1  
1   1  
 n  n
 
 
C  1  M
1
y  nT
y   y
nT

   1    1  
n  n   n
2
 
 
C  1  M
1
y  2T
y   y
2T

   1     1  
2  2   2
•Suppose the Xanth (pronounced “zanth”) Co. were to issue a bond with 10 years to maturity. The Xanth bond has
an annual coupon of $80. Similar bonds have a yield to maturity of 8 percent. Based on our preceding discussion,
the Xanth bond will pay $80 per year for the next 10 years in coupon interest. In 10 years, Xanth will pay $1,000
to the owner of the bond. What would this bond sell for?

coupon 80
Face value (redeemption) 1000
rate 8.0%
YTM (yield) 8%
Settlement 1/1/2000
Maturity 1/1/2010
PV 1000 compare to face value
trong excel, redeemptio chia 10, ra kết quả nhân 10
Consider a bond with a 10% annual coupon rate, 15 years to maturity and a par value of $1,000.
The current price is $928.09.
n=1 n=2
rate 10% Pv 928.09 928.09
settlement 1/1/2000 fv 1000 1000
maturity 1/1/2015 pmt 100 50
Face value 1000 nper 15 30
PV 928.09 rate
n=1,Yield to maturity=

n=2, YTM=
 Bond X is a premium bond making semiannual payments. The bond
pays a coupon rate of 7.4 percent, has a YTM of 6.8 percent, and has
13 years to maturity. Bond Y is a discount bond making semiannual
payments. This bond pays a coupon rate of 6.8 percent, has a YTM of
7.4 percent, and also has 13 years to maturity. What is the price of each
bond today? If interest rates remain unchanged, what do you expect the
price of these bonds to be one year from now? In three years? In eight
years?In 12 years? In 13 years? What’s going on here? Illustrate your
answers by graphing bond prices versus time to maturity.

Bond X Bond Y
Rate 7.40% 6.80%
YTM 6.80% 7.40%
n 2 2
Face value 100 100
T 13 13
settlement 1/1/2000 1/1/2000
maturity 1/1/2013 1/1/2013
Price
 Use Price function Use PV function
settlement Bond X Bond Y T Bond X Bond Y
Now 1/1/2000 13
1 year later 1/1/2001 12
3 yrs later 1/1/2003 10
8 yrs later 1/1/2008 5
12 yrs later 1/1/2012 1
13 yrs later 1/1/2013 0

Bond price vs Time to maturity

10.00

8.00

6.00

4.00

2.00

0.00
1 year later 3 yrs later 8 yrs later 12 yrs later 13 yrs later

Bond X Bond Y
 J Corporation has two different bonds currently
out_x0002_standing. Bond M has a face value of
$20,000 and matures in 20 years. The bond makes
no payments for the first six years, then pays $900
every six months over the subsequent eight years,
and finally pays $1,300 every six months over the last
six years. Bond N also has a face value of $20,000
and a maturity of 20 years; it makes no coupon
payments over the life of the bond. If the required
return on both these bonds is 5.4 percent
compounded semiannually, what is the current price
of Bond M? Of Bond N