Question 1
Multiple ChoiceCortina Metals issued 10-year corporate bonds two years ago. The bonds pay an annualized coupon of 9.2 percent on a semiannual basis, and the current annualized yield to maturity (YTM) is 10.0 percent. The current price of Cortina’s bonds (per MXN100 of par value) is closest to:
Explanation
The bond pays a semiannual coupon:
Coupon = 9.2% ÷ 2 = 4.6% → MXN4.60 every six months.
YTM per period = 10.0% ÷ 2 = 5.0% → 0.05
Number of periods = (10 − 2) × 2 = 16
Use the formula:
Price = PV of coupons + PV of face value
= 4.60 / 1.05 + 4.60 / 1.05² + ... + 4.60 / 1.05¹⁶ + 100 / 1.05¹⁶
= MXN 96.76 (rounded)
Using the BA II Plus Calculator (Recommended):
2nd → FV (to clear TVM inputs)
N = 16
I/Y = 5
PMT = 4.6
FV = 100
Press CPT → PV
Result: −96.76
Thus, the bond is priced at MXN96.76.