The Zeniba Corp. sold 25 year bonds to the investing public 5 years ago. The bonds have a fixed coupon of 7.5%, pay interest semiannually, and have a face value of $1,000. If Zeniba were to come to market today to borrow money via a new 20 year loan, it would have to pay an interest rate of 6.5% per year, compounded semiannually (i.e., the YTM lenders require today on 20 year loans to Zeniba = 6.5%).
a) What is your estimate, to the nearest penny, of today's price of the bond?
b) Given your answer to part a) above, what is the current yield on the bond?
c) Suppose, instead of the above data, you were told that the bond is selling for $1,053.39 today. What would be the yield to maturity on the bond?
(2) A Chihiro Company bond has 6 years to go until it matures. The bond has a coupon of 6%, pays interest semiannually, and has a face value of $1,000. The bond's current yield is 6.367%.
a) What is today's price of the bond?
b) What is the yield to maturity on the bond?