Question

Scan Solutions, Inc. issued a 15 year maturity, 6% semi-annual coupon paying bond 7 years ago. You purchased the bond at par value at the time of issue. You intend to sell the bond now. Similar maturity, similar risk bonds currently yield 8.2% per year. a) What price do you expect to receive for the Scan Solutions bond if you sell it today? b) What is your realized yield if you succeed in selling the bond today at a price of $870? At a price of $885?

Please show the steps to finding the answer using a *Financial Calculator*! Thank you.

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Answer #1

a.

Par value of Bond = $1000

Coupon rate of bond = 6% semi annually

Years remaining to maturity = 8 years

YTM of similar bonds in market = 8.2% per year

PresentValueof Bond- ParValue/(1C/) t-1

Price of Bond today,

Present Value of Bond = $872.77

b.

YTM is calculated by putting discrete values in the above formula and making PV equal to given Present Value,

For Bond Price = $870

YTM = 8.25%

For Bond Price = $885

YTM = 7.97%

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