Click here to Get Complete Solved Assignments
List of Fresher Jobs, Walk in Interview
Right place for Job Seeker. Fresher Job, Walkin Interview, Exam results.
Visit www.walkinjobstoday.com

MB0045 - Q1. A company has issued a bond with face value of Rs.1000, with 10% pa coupon rate payable annually and tenure of 10 years to maturity. At the end of 10 years, the bond will be redeemed at a premium of 10% to face value.

a) At what price would you buy the bond if the prevailing interest rate is 12% pa on investments of similar risk?
b) What is the YTM of the bond if the prevailing price is same as calculated in a) above.
c) What is the current yield of the bond at the given price?
d) If the coupon rate is paid semi-annually, at what price would you buy the bond at the 12% pa prevailing interest rate?
Answer:
a.
PVIFA(Kd,n) = [(1 + Kd)n - 1 ] / [Kd (1 + Kd) n]
PVIFA(12%,10) = [(1+0.12)10 -1] / [0.12(1+0.12) 10]
= [(1.12) 10 -1] / [0.12(1.12) 10]
= 2.11 / 0.37
= 5.70

coupan rate I = 10%

face value = 1000
So, I = 1000 * 10 % = Rs 100

Value of Bond Vo = I * PVIFA(Kd,n) + F/(1+Kd) n
= 100 * 5.70 + 1000/ (1.12)10
= 570 + 1000/ 3.10
= 570 + 322.58
= 892.58

b. YTM = {I + (F-P)/n} / {(F+P)/2}
I = 100 , F = 1120 , P= 892
= { 100 + (1000 – 892) / 10} / {(1000+892) / 2}
= 110.8 / 946
= 11.7 %

C. Current Yield = coupan Interest / current market price
Coupan Interest= 1000 * 10% = 100
Current market price = 892

Current Yield = 100 / 892
= 11.21 %

2 comments:

  1. Explain the Net operating income approach to capital structure theories

    ReplyDelete
  2. please send answers for assignment set - 2 of MB0045

    ReplyDelete

Related Posts Plugin for WordPress, Blogger...
 
x

Get Our Latest Posts Via Email - It's Free

Enter your email address:

Delivered by FeedBurner