Question

A Japan-based company, Sumo Gyms, Inc., issues a 35-year, semi-annual coupon bond, with a ¥300 million par value. The coupon rate is given as 6.70%, and the yield to maturity is 7.90. a. What is the value of the semi-annual coupon on the bond? (Enter your answer in millions and round to two decimal places.) b. What is the price of the bond? (Enter your answer in millions and round to two decimal places.)

A Japan-based company, Sumo Gyms, Inc., issues a 35-year, semi-annual coupon bond, with a ¥300 million par value. The coupon rate is given as 6.70%, and the yield to maturity is 7.90. a. What is the value of the semi-annual coupon on the bond? (Enter your answer in millions and round to two decimal places.) Coupon million b. What is the price of the bond? (Enter your answer in millions and round to two decimal places.) Bond price million

Answer 1

Information provided:

Par value= future value= 300 million

Coupon rate= 6.70%/2= 3.35% per semi-annual bond

Yield to maturity= 7.90%/2= 3.95 per semi-annual bond

Time= 35 years*2= 70 semi-annual periods

a.Semi-annual coupon= Semi-annual coupon rate*Par value of the bond

                                           = 0.0335*$300 million

                                            = 10.05 million

b.Price of the bond is computed by calculating the present value. Enter the below in a financial calculator to compute the present value:

FV= 300

PMT= 10.05

N= 70

I/Y= 3.95

Press the CPT key and PV to compute the present value.

The value obtained is 257.4570.

Therefore, the price of the bond is 257.46 million.

In case of any query, kindly comment on the solution.