Question

Face Value you can choose your own

21. The current price of a zero-coupon bond with a YTM of 7% and 10 years to maturity is: a) $499 b) $508 c) $614 d) $1082 22. If the coupon rate on a bond is 8%, and the current yield is 996, then this bonds price is: a) $780 b) $800 c) $888 d) $1012 60 23. The current price of a constant growth stock with Do-$5, R-12% and g-796 is: a) $87 b) $97 c) $107 d) $117

Answer 1

Ans 21)

Current Price of zero-coupon bond= Fac Value/(1=r)^t

here t=10; r=7 and Face Value=$1000

Current Price of zero coupon bond=1000/(1.07)^10=$508.35

Hence option B is correct

Ans 22)

Price of the bond=Sum of discounted value of future coupons+ PW of Face Value

Annual Coupon amount=8%*1000=$80

r=9%

Current Yield=Coupon amount/Current Price

9%=50/Price

Price of the bond=80/0.09=$888.88

Hence option C is correct

Ans 22)

Gordon Growth Model says

P=D1/(R-g)

D1=D0*(1+r)=5(1.07)5.35

R-g=12%-7%=5%

P=5.35/5%=$107

Hence option C is correct