Bexx Plc. has issued a 10-year corporate bond with a par value of £100 and a 9% annual coupon rate. Assume your required the rate of return of this bond is 10%. The market required rate of return or yield-to-maturity (YTM) of this bond is estimated to be 8.5% and is assumed to remain constant.
2007-12-11 21:56:25 · 2 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
can you show me how this calculation is done?
2007-12-11 22:41:43 · update #1
If you want a simple 10% return (ignoring inflation etc) then you should purchase only when the Bond falls to £90 or below.
A £100 Bond paying 9% will yield £9 a year .. if you want this to be10%, then you have to wait for the Bond to fall to £90 (£9 is 10% of £90)
If the market currently prices the Bond at 8.5%, then the current market value will be approx £105.88 (£9 is 8.5% of 105.88)
2007-12-11 23:29:23 · answer #1 · answered by Steve B 7 · 0⤊ 0⤋
If the YTM is 8.5% and the coupon is 9% the bond is probably selling for about:
x=109/108.5=100.46
2007-12-11 22:15:33 · answer #2 · answered by Griffin 4 · 0⤊ 0⤋