Business, 22.07.2021 18:40 Redeyestudio53

Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: - Bond A has a 7% annual coupon, matures in 12 years, and has a $1000 face value.
- Bond B has a 9% annual coupon, matures in 12 years, and has a $1000 face value.
- Bond C has an 11% annual coupon, matures in 12 years, and has a $1000 face value.
Each bond has a yield to maturity (YTM) of 9%
a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par.
b. Calculate the price of each of the three bonds.
c. Calculate the current yield for each of the three bonds. ( Refer to Footnote 7 fo for the definition of the current yield and to
table 7.1.)
Here is 7.1. and solution;
Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8 percent; and the yield to maturity is 9 percent. What is the bond's current market price?
Given the current market rate of 9.000% for a similar bond, a bond with a face value of $1,000.00 and paying a coupon rate of 8.000% (compounding Annually), should be selling for $935.82 (selling at a discount).
The present value of interest payments is calculated using the formula for present value of an annuity and the present value of the face value (also called the maturity value) is calculated using the formula for present value of a single sum occurring in future.
If r is the interest rate prevailing in the market, c is the coupon rate on the bond, t is the time periods occurring over the term of the bond and F is the face value of the bond, the present value of interest payments is calculated using the following formula:

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