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 October 8th, 2015, 09:13 AM #1 Newbie   Joined: Oct 2015 From: canada Posts: 9 Thanks: 0 financial math help Hey guys currently working on 2 questions that I am stuck on. 1. A ten-year bond pays 8 % annual interest (paid semiannually). If similar bonds are currently yielding 6 % annually, what is the market value of the bond? I can find when its not semi annually by doing: fv= -1000 pmt= -80 n = 10 iy= 6 which gives me 1147.2 but the answer its giving is 1148.77 any help would be much appreciated thanks! Last edited by math123321; October 8th, 2015 at 09:35 AM.
 October 8th, 2015, 09:56 AM #2 Math Team   Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,347 Thanks: 1024 Use n = 20, pmt = -40 and i = 3 ; why? It's semiannual !
October 8th, 2015, 10:21 AM   #3
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 Originally Posted by Denis Use n = 20, pmt = -40 and i = 3 ; why? It's semiannual !
wow, I could of sworn I tried that. Thank you very much.

October 8th, 2015, 10:29 AM   #4
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 Originally Posted by math123321 wow, I could of sworn I tried that. Thank you very much.
No swearing, my fellow Canuck

October 8th, 2015, 11:03 AM   #5
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 Originally Posted by Denis No swearing, my fellow Canuck
haha sorry,

I actually have 1 more I am stuck on which is:

a 4 year bond pays 4% annual interest (paid semi annually). It currently sells for 872.25. what is the bonds yield to maturity.

For some reason my mind is going blank on this one.

 October 8th, 2015, 12:45 PM #6 Math Team   Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,347 Thanks: 1024 That cannot be solved directly; numeric method required. You need the PV of 1000 + PV of annuity = 20, for 8 periods. For above to equal 872.25, a semiannual rate of ~3.89%. I calculated that through a program. PV 1000 = 736.90 PV 20 * 8 = 135.35
October 8th, 2015, 01:18 PM   #7
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 Originally Posted by Denis That cannot be solved directly; numeric method required. You need the PV of 1000 + PV of annuity = 20, for 8 periods. For above to equal 872.25, a semiannual rate of ~3.89%. I calculated that through a program. PV 1000 = 736.90 PV 20 * 8 = 135.35
one of the possible answers is 7.78 which is 3.89 muliplied by 2 , so maybe that's it, Just gotta figure out how that was made. I appreciate your help Denis. I have one last question I am completely stuck on and would love any help from you. I am pulling my hair out over here haha.

The common stock paid a dividend of \$3.00 per share last year, but the company expected that earnings will grow by 25 percent for the next two years before dropping to a constant 9 percent growth rate afterwards. the required rate of return on a similar common stock is 13 percent.

what is the per-share value of the company's common stock

 October 8th, 2015, 01:20 PM #8 Newbie   Joined: Oct 2015 From: canada Posts: 9 Thanks: 0 would it be 3/(0.13 - 0.09) but then the 25% growth part is throwing me off.
October 8th, 2015, 03:44 PM   #9
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 Originally Posted by math123321 one of the possible answers is 7.78 which is 3.89 muliplied by 2 , so maybe that's it,.....
Not quite: (1.0389)^2 - 1 = 1.0793 - 1 = .0793 or 7.93%
That's because of the compounding semiannually;
compounding always increases the periodic rate...

October 8th, 2015, 03:49 PM   #10
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 Originally Posted by math123321 would it be 3/(0.13 - 0.09) but then the 25% growth part is throwing me off.
No, that's not correct; but I don't understand the oroblem,
so I'm not gonna guess!
Perhaps someone else here will ride in to the rescue.

Go here, perhaps you can find out by yourself:

I'm watching the Ottawa Senators...so leave me alone

Last edited by Denis; October 8th, 2015 at 03:53 PM.

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