Hi Luke really enjoyed your video but am stuck at part 2nd of this question can you explain this cant understand it. Atlantis has been planning to develop a new warning system. The installation of the system costs more than what their budget allows so the mayor decides to issue a 20-year bond to finance the project. The bonds have a face value of $1,000 and it promises a coupon rate of 8.6% which will be paid quarterly to the bond holders. a) Calculate the price you have to pay to purchase the bond if i. The Yield to Maturity (YTM) is 7.5% (annually) ii. The Yield to Maturity (YTM) is 12.0% (annually) b) Let’s assume you would like to buy 50 bonds issued by Atlantis with a 20-year tenure. If the YTM is 8.6% and the coupon rate is 8.0%, calculate how much more you have to pay when you purchase a bond which makes annual coupon payments rather than quarterly
For part (b) you are solving for the price under two different payment options. For the quarterly payments, be sure to input the I/Y as quarterly (8.6/4) the N also (20*4) and the coupon (80/4). Solve for PV. Do the same PV calculation again, but with annual inputs (8.6, 20, 80). This will give you the per bond valuations. Subtract the two values and multiply by 50 (the number of bonds you are buying), to get the additional amount you would pay. Hope this helps!
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You're literally my second professor, Love from Ucalgary
Your the GOAT for posting these videos! Helping me Ace my Finance Exams!
I am glad you have found them helpful!
Thank you so much for this video. I have a better understanding and foundation in bonds and bonds valuation topic .
Glad it was helpful!
For the realized yield @28 mins example, the realized yield should be 5.72 ×2 =11.44
Yes, you are correct. The initial I/Y I solved for is incorrect. Thank you posting the correct solution.
Hi Luke really enjoyed your video but am stuck at part 2nd of this question can you explain this cant understand it.
Atlantis has been planning to develop a new warning system. The installation of the
system costs more than what their budget allows so the mayor decides to issue a 20-year
bond to finance the project. The bonds have a face value of $1,000 and it promises a
coupon rate of 8.6% which will be paid quarterly to the bond holders.
a) Calculate the price you have to pay to purchase the bond if
i. The Yield to Maturity (YTM) is 7.5% (annually)
ii. The Yield to Maturity (YTM) is 12.0% (annually)
b) Let’s assume you would like to buy 50 bonds issued by Atlantis with a 20-year
tenure. If the YTM is 8.6% and the coupon rate is 8.0%, calculate how much
more you have to pay when you purchase a bond which makes annual coupon
payments rather than quarterly
For part (b) you are solving for the price under two different payment options. For the quarterly payments, be sure to input the I/Y as quarterly (8.6/4) the N also (20*4) and the coupon (80/4). Solve for PV. Do the same PV calculation again, but with annual inputs (8.6, 20, 80). This will give you the per bond valuations. Subtract the two values and multiply by 50 (the number of bonds you are buying), to get the additional amount you would pay. Hope this helps!
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