BUS 401 Week 2 discussion 2

The bond that I choose to look at is AMAZON COM INC. Here is the information for this bond:

Price: 96.67

Coupon (%): 2.500

Maturity Date: 29-Nov-2022

Yield to Maturity (%): 2.971

Current Yield (%): 2.586

Fitch Ratings: AA

Coupon Payment Frequency: Semi-Annual

First Coupon Date: 29-May-2013

Type: Corporate

Callable: Yes

Formula

PVo  =  (coupon) (1 - [ 1 / (1+r) ^m ])  +  (par value)

                                         R                      (1 + r) ^m

PVo  = (1.25) (1-[1/(1+1.4588)^8] + (1000)

                                  1.4588             1+ 1.4855) ^ 8

 PVo  = (1.25)(5.1309) + (1000)  = (6.413625)+(1000) = $1006.41

                        1.4588   

The first step in this equation is to find the coupon %. The coupon is 2.50% divided by 2 since it is semi-annual, that is 1.25. R= current annual yield divided by 2, which is 1.4855. This bond sells at $1006.41 This bond would considered selling at a premium because the value is over $1000.