Question

For a 3.25% coupon bond with a 3.75% yield to maturity, match the price per $1,000 in bonds to the term to maturity.

- 10 years to maturity: - 9 years to maturity: - 3 years to maturity: - 2 years to maturity: - 1 year to maturity:

A. $995.18 B. $958.62 C. $958.94 D. $985.94 E. $990.45 F. $962.40 G. $981.76 H. $962.10 I. $986.06 J. $995.14

Answer 1

Coupon =3.25%*1000 =32.50
YTM =3.75%
Par Value =1000
Number of Years =10
Price =PV of Coupons + Par Value =32.50*((1-(1+3.75%)^-10)/3.75%)+1000/(1+3.75%)^10 =958.94 (Option C)

Number of Years =9
Price =PV of Coupons + Par Value =32.50*((1-(1+3.75%)^-9)/3.75%)+1000/(1+3.75%)^9 =962.40 (Option F)

Number of Years =3
Price =PV of Coupons + Par Value =32.50*((1-(1+3.75%)^-3)/3.75%)+1000/(1+3.75%)^3 =986.06 (Option I)

Number of Years =2
Price =PV of Coupons + Par Value =32.50*((1-(1+3.75%)^-2)/3.75%)+1000/(1+3.75%)^2 =990.45 (Option E)

Number of Years =1
Price =PV of Coupons + Par Value =32.50*((1-(1+3.75%)^-1)/3.75%)+1000/(1+3.75%)^1 =995.18 (Option A)