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/-
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
