Question

V

1 Consider a 20​-year bond with a face value of $ 1 comma 000 that has a coupon rate of 5.8 %, with semiannual payments.

a. What is the coupon payment for this​ bond?

b. Draw the cash flows for the bond on a timeline.

a. What is the coupon payment for this​ bond?

The coupon payment for this bond is $

Nothing. ​ (Round to the nearest​cent.)

b. Draw the cash flows for the bond on a timeline.

Select the timeline below that shows the correct cash flows for this bond.  ​(Select the best choice​below.)

A.

The timeline starts at Period 0 and ends at Period 40. The timeline shows a cash flow of $ 29.00 each from Period 1 to Period 39. In Period 40, the cash flow is $ 1,029.00.

Period012nothing3940

Cash Flows nothing$ 29.00$ 29.00nothing$ 29.00$ 1,029.00

B.

The timeline starts at Period 0 and ends at Period 20. The timeline shows a cash flow of $ 29.00 each from Period 1 to Period 19. In Period 20, the cash flow is $ 1,029.00.

Period012nothing1920

Cash Flows nothing$ 29.00$ 29.00nothing$ 29.00$ 1,029.00

C.

The timeline starts at Period 0 and ends at Period 20. The timeline shows a cash flow of $ 29.00 each from Period 1 to Period 19. In Period 20, the cash flow is $ 1,000.

Period012nothing1920

Cash Flows nothing$ 29.00$ 29.00nothing$ 29.00$ 1,000

D.

The timeline starts at Period 0 and ends at Period 40. The timeline shows a cash flow of $ 29.00 each from Period 1 to Period 39. In Period 40, the cash flow is $ 1,000.

Period012nothing3940

Cash Flows nothing$ 29.00$ 29.00nothing$ 29.00$ 1,000

2 Assume that a bond will make payments every six months as shown on the following timeline​ (using six-month​ periods):

The timeline starts at Period 0 and ends at Period 50. The timeline shows a cash flow of $ 19.31 each from Period 1 to Period 49. In Period 50, the cash flow is $ 19.31 plus $ 1,000.

Period012nothing4950

Cash Flows nothing$ 19.31$ 19.31nothing$ 19.31$ 19.31 plus $ 1,000

a. What is the maturity of the bond​(in years)?

b. What is the coupon rate​(as a​percentage)?

c. What is the face​value?

a. What is the maturity of the bond​(in years)?

The maturity is

Nothing years.  ​(Round to the nearest​integer.)

b. What is the coupon rate​(as a​percentage)?

The coupon rate is

Nothing​%. ​(Round to two decimal​places.)

c. What is the face​value?

The face value is $

Nothing. ​(Round to the nearest​dollar.)

3 Assume that a bond will make payments every six months as shown on the following timeline​ (using six-month​ periods):

The timeline starts at Period 0 and ends at Period 20. The timeline shows a cash flow of $ 20.00 each from Period 1 to Period 19. In Period 20, the cash flow is $ 20.00 plus $ 1,000.

Period012nothing1920

Cash Flows nothing$ 20.00$ 20.00nothing$ 20.00$ 20.00 plus $ 1,000

a. What is the maturity of the bond​(in years)?

b. What is the coupon rate​(as a​percentage)?

c. What is the face​value?

a. What is the maturity of the bond​(in years)?

The maturity is

Nothing years.  ​(Round to the nearest​integer.)

b. What is the coupon rate​(as a​percentage)?

The coupon rate is

Nothing​%. ​(Round to two decimal​places.)

c. What is the face​value?

The face value is $

Nothing. ​(Round to the nearest dollar.)

4 Your company wants to raise $9.0 million by issuing 15​-year zero-coupon bonds. If the yield to maturity on the bonds will be 4 % (annual compounded APR), what total face value amount of bonds must you​issue?

The total face value amount of bonds that you must issue is $

Nothing. ​(Round to the nearest​cent.)

Answer 1

(1) Bond Coupon = 5,8% payable semi-annually, Bond Tenure = 20 years or (20 x 2) = 40 half-years and Bond Par Value = $1000

(a) Semi-Annual Coupon Payment = Par Value x Annual Bond Coupon Rate x 1/2 = 1000 x 0.058 x 1/2 = $ 29

(b) As the bond has semi-annual payments, the number of coupon periods is twice the bond's tenure in years. Hence, the payment timeline should start from 0 and end at 40. Further, at the end of each time period during the aforementioned period the payout equals the bond's semi-annual payment of $ 29 (calculated in part(a)) except for the final period. At the end of the final period (i.e period 40), the semi-annual coupon plus the par value worth $ 1000 is repaid, thereby making the total final payment equal to $ 1029.

Hence, the correct option is (A)

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