Question

1. Company B had issued 10-year bonds a year ago at the coupon rate 6%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 5%. The face value of the bond is $1000.Calculate the current bond price.

2. During 2017, company XYZ had sales 263658; costs 142213; depreciation expense 36358; interest expense 11698; tax rate 35 percent.Given this information what is company XYZ net income.

3. Company B has a second debt issue on the market, a zero coupon bond with 2.7 years left to maturity. The yield to maturity (YTM) of these bonds is 8 %. The face value of the bond is $1000. Calculate the current bond price.

Answer 1

1.

Here is the formula for calculating a bond's price, which uses the basic present value (PV) formula: Bond Price = C с (1+i) (1+i)? + + ... + с M (1+i)" (1+i)" + C = coupon payment n = number of payments i = interest rate, or required yield M = value at maturity, or par value

Face Value ($)	1000
Time to maturity (years)	10
Coupon rate	6%
YTM	5%
Bond price ($)	1077.22

2.

Sales	263658
Costs	142213
EBITDA	121445
Depreciation	36358
EBIT	85087
Interest expense	11698
PBT	73389
Tax	25686
Net Income	47703

3.

Zero Coupon Bond Value F (1 + r) F = face value of bond r = rate or yield t = time to maturity

ZERO COUPON BOND
Face Value ($)	1000
Time to maturity (years)	2.7
YTM	8%
Bond price ($)	812.37