A 10-year bond is issued today. Its coupon rate is 12% and pays coupon semiannually. If...

A 10-year bond is issued today. Its coupon rate is 12% and pays coupon semiannually. If the YTM for this bond is 8% and you decide to buy this bond 57 days later. How much do you need to pay

Solutions

Expert Solution

Face/Par Value of bond = $1000

Semi-Annual Coupon Bond = $1000*12%*1/2

= $60

No of Coupon payments(n) = 10 years*2= 20

Semi-annual YTM = 8%/2 = 4%

Calculating the Market price of Bond today:-

Price = $815.420 + $456.387

Price = $1271.81

The current market price of Bond Today is $1271.81

- You decide to purchase the bond after 57 days.

Price of Bond after 57 days = Today price + Accured Interest of 57 days

where, Accured Interest of 57 days = Semi-annual coupon payment*57/182 = $60*57/182

= $18.79

Price of Bond after 57 days = $1271.81 + $18.79

Price of Bond after 57 days = $1290.60

SO, amount you need to pay is $1290.60

If you need any clarification, you can ask in comments.

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jeff jeffy answered 1 year ago

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