Answer:
Faulk: -0,1925629 = -19.25%
Yoo: 0,1615398 = 16.15%
Explanation:
We need to solve forthe present value of the coupon and maturity on each bond considering the yield to maturity of 7% and 9% and compare the price variations:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 20.000
time 34
rate 0.035
[tex]20 \times \frac{1-(1+0.035)^{-34} }{0.035} = PV\\[/tex]
PV $394.0137
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 34.00
rate 0.035
[tex]\frac{1000}{(1 + 0.035)^{34} } = PV[/tex]
PV 310.48
PV c $394.0137
PV m $310.4761
Total $704.4897
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 20.000
time 34
rate 0.045
[tex]20 \times \frac{1-(1+0.045)^{-34} }{0.045} = PV\\[/tex]
PV $344.9352
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 34.00
rate 0.045
[tex]\frac{1000}{(1 + 0.045)^{34} } = PV[/tex]
PV 223.90
PV c $344.9352
PV m $223.8959
Total $568.8311
Price variation on Faulk
($568.8311 - $704.4897) / $704.4897 = -0,1925629
Yoo Company:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 50.000
time 34
rate 0.035
[tex]50 \times \frac{1-(1+0.035)^{-34} }{0.035} = PV\\[/tex]
PV $985.0342
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 34.00
rate 0.035
[tex]\frac{1000}{(1 + 0.035)^{34} } = PV[/tex]
PV 310.48
PV c $985.0342
PV m $310.4761
Total $1,295.5103
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 50.000
time 34
rate 0.045
[tex]50 \times \frac{1-(1+0.045)^{-34} }{0.045} = PV\\[/tex]
PV $862.3379
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 1,000.00
time 34.00
rate 0.045
[tex]\frac{1000}{(1 + 0.045)^{34} } = PV[/tex]
PV 223.90
PV c $862.3379
PV m $223.8959
Total $1,086.2338
($1,295.5103 - $1,086.2338 ) / $1,295.5103 = 0,1615398
