# Q3) What is the price of a $1,

Q3) What is the price of a $1,000 par value, semi-annual couponbond with 18 years to maturity, a coupon rate of 08.60% and ayield-to-maturity of 05.10%? (1 point) Q4) What is the price of a$1,000 par value, 18 year, annual coupon bond with a 05.80% couponrate and a yield to maturity of 04.90%? (1 point) Q5) You bought a20-year, 07.30% semi-annual coupon bond today and the currentmarket rate of return is 06.30%. The bond is callable in 7 yearswith a $50 call premium. What price did you pay for your bond? (2points)

Answer:

**Q3**

The **price** of a bond is the **presentvalue** of the **expected cash flows** on thebond discounted at **YTM.** Hence the price is$1409.02/- ,computed as follows-

Year |
Cash flow |
PVF/[email protected]% |
Present Value |

1-36 | 43 | 23.3749 | 1005.12 |

36 | 1000 | .4039 | 403.90 |

1409.02 |

Note: *Since it is semi annual coupon bond, Interest is taken as43(1000*8.6%/2), YTM is taken as 2.55(5.1/2) and period is taken as36(18*2)

* Since no information is provided redeeemed at par.

**Q4**

Year |
Cash Flow |
PVF/[email protected]% |
Present Value |

1-18 | 58 | 11.7814 | 683.32 |

18 | 1000 | .4227 | 422.70 |

Hence the price is **$1106.02**/-

* Since no information is provided redeeemed atpar.

**Q5**

The **price** of a bond is the **presentvalue** of the **expected cash flows** on thebond discounted at an interest rate that is appropriate to therisskness of that bond. Hence here 6.30% is taken which is thecurrent market rate of return.

Year |
Cashflow |
PVF/[email protected]% |
Present Value |

1-14 |
36.5 | 9.1247 | 333.05 |

14 | 1050(1000+50) | .4251 | 446.36 |

Hence the price is **$779.41/-**