Question

A- What is the dollar price of a zero coupon bond with 12 years to maturity if the YTM is 8%?

b- What is the dollar price of a zero coupon bond with 5 years to maturity if the YTM is 11%?

c- What is the dollar price of a bond paying a coupon rate of 5% with 8 years to maturity if the YTM is currently 7%?

Answer 1

a

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =12

Bond Price =∑ [(0*1000/100)/(1 + 8/100)^k]     +   1000/(1 + 8/100)^12

k=1

Bond Price = 397.11

b

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =5

Bond Price =∑ [(0*1000/100)/(1 + 11/100)^k]     +   1000/(1 + 11/100)^5

k=1

Bond Price = 593.45

c

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =8

Bond Price =∑ [(5*1000/100)/(1 + 7/100)^k]     +   1000/(1 + 7/100)^8

k=1

Bond Price = 880.57