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Stark industries has just issued bonds with $1,000 par value, a $30 coupon paid semiannually (SA),...

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Finance

Stark industries has just issued bonds with $1,000 par value, a$30 coupon paid semiannually (SA), and a 20-year maturity. Thismeans the original issue yield was 6% (($30 * 2) / $1,000 = .06 or6%). You buy one $1,000 Stark 20-yr 6% bond at issue. 3 yearslater, you call your broker and tell her to sell it (17 years untilmaturity). At this point, yields for Stark’s bonds and similarissues have dropped to 4%. What is the PV of the bond now? Did youtime the buying of the bond well and make money? What is yourcapital gain on this trade?

Please can you do manually.

thank you

Answer & Explanation Solved by verified expert
4.0 Ratings (481 Votes)
Whenever the bond is issued it is issued at a price whichprovides yields equal to the yields of similar issues in themarket Thus the bonds on issue always sells at par Thus thepurchase price of the bond should be 1000Now after 3 years the bond will pay a    See Answer
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Transcribed Image Text

Stark industries has just issued bonds with $1,000 par value, a$30 coupon paid semiannually (SA), and a 20-year maturity. Thismeans the original issue yield was 6% (($30 * 2) / $1,000 = .06 or6%). You buy one $1,000 Stark 20-yr 6% bond at issue. 3 yearslater, you call your broker and tell her to sell it (17 years untilmaturity). At this point, yields for Stark’s bonds and similarissues have dropped to 4%. What is the PV of the bond now? Did youtime the buying of the bond well and make money? What is yourcapital gain on this trade?Please can you do manually.thank you

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