# 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)

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/-

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