Question

Suppose there is a 15 year bond with at 5.5% coupon rate, paying coupons semi-annually, and a face value equal to $1000.  Suppose the yield to maturity is 6.5%, and the bond is currently selling at $1050. Should you buy the bond? Explain.

Suppose you have obtained a $15,000 loan at an APR of 16%, with annual payments.

Fill out the first year of the amortization schedule for this loan:

Year	Begin Balance	Total Payment	Interest Paid	Principal Paid	End Balance
1

            

Answer 1

Price of the bond = PV of cash flows from it

Period	CF	[email protected]%	Dsic CF
1	$      27.50	0.9685	$   26.63
2	$      27.50	0.9380	$   25.80
3	$      27.50	0.9085	$   24.98
4	$      27.50	0.8799	$   24.20
5	$      27.50	0.8522	$   23.44
6	$      27.50	0.8254	$   22.70
7	$      27.50	0.7994	$   21.98
8	$      27.50	0.7742	$   21.29
9	$      27.50	0.7499	$   20.62
10	$      27.50	0.7263	$   19.97
11	$      27.50	0.7034	$   19.34
12	$      27.50	0.6813	$   18.73
13	$      27.50	0.6598	$   18.15
14	$      27.50	0.6391	$   17.57
15	$      27.50	0.6189	$   17.02
16	$      27.50	0.5995	$   16.49
17	$      27.50	0.5806	$   15.97
18	$      27.50	0.5623	$   15.46
19	$      27.50	0.5446	$   14.98
20	$      27.50	0.5275	$   14.51
21	$      27.50	0.5109	$   14.05
22	$      27.50	0.4948	$   13.61
23	$      27.50	0.4792	$   13.18
24	$      27.50	0.4641	$   12.76
25	$      27.50	0.4495	$   12.36
26	$      27.50	0.4354	$   11.97
27	$      27.50	0.4217	$   11.60
28	$      27.50	0.4084	$   11.23
29	$      27.50	0.3955	$   10.88
30	$      27.50	0.3831	$   10.53
30	$1,000.00	0.3831	$ 383.09
Price of the Bond	$ 905.09

Price of the bond = % 905.09

Current price in market = $ 1050

The bond iis over priced, It is not recommended to buy the bond

B

EMI = Loan amount / PVAF (r%,n)

= 15000 / PVAF (16%,n)

In the given question "n= repayment tenure"  is not provided, so it is not possible to calcutate the EMI

If tenure is known, please comment so that i can provide the answer

Pls do rate, if the answer is correct and comment, if any further assistance is required.