# Finance Essay example

P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n

F = par value

C = maturity value r = coupon rate per coupon payment period i = effective interest rate per coupon payment period n = number of coupon payments remaining

In this problem F = 1000. And, since we are not given the maturity value, we can assume that it is the same as the par value. Therefore, C = 1000.

r = .08 i = .09 n = 12

By Plugging the numbers into the equation: 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39

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Coupon rate = 10% paid semiannually

Years to maturity = 8 years

Par value = $1,000

YTM = 8.5%

Adjustment for semiannual payments:

Coupon rate = 10%/2 = 5%

Number of payments = 8*2 = 16

YTM = 8.5%/2 = 4.25%

Value of the bond=t=1nPar value*Coupon rate1+YTMt+Par value1+YTMn

Given: | ? |

Coupon rate | 10.00% | Paid semiannually |

Years to maturity | 8 | years |

Face value | $1,000 | |

YTM | 8.50% | |

Adjustment for semiannual payment | ? |

Coupon rate | 5.00% | |

Number of coupon payments | 16 | |

YTM | 4.25% | |

| | |

Year | Coupon payment | Discount with YTM |

1 | $50.00 | $47.96 |

2 | $50.00 | $46.01 |

3 | $50.00 | $44.13 |

4 | $50.00 | $42.33 |

5 | $50.00 | $40.61 |

6 | $50.00 | $38.95 |

7 | $50.00 | $37.36 |

8 | $50.00 | $35.84 |

8 | $1,000 | $716.79 |

Value of the bond | | $1,049.98 |

5-13 You just purchased a bond which matures in 5 years. The bond has a face value of $1,000, and has an 8 percent annual coupon. The bond has a current yield of 8.21 percent. What is the bond’s yield to maturity?

Current Yield = Annual Coupon / PV

0.0821 = 80 / PV

PV = 80 / 0.0821 = 974.42

N = 5; PMT = 80; FV=1000; PV = 974.42 CPT I/Y

I/Y = 8.65%

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6-6 If a company’s beta were to double, would it expected return double?

No, if a beta were to double, its expected return would also not double.