Question

In: Finance

Bonds issued in the Philippines, make a coupon payments twice ayear. So, if an ordinary...

Bonds issued in the Philippines, make a coupon payments twice a year. So, if an ordinary bond has a coupon rate of 14%, then the owner will get a total of P140 a year, but this P140 will come in two payments of P70. Suppose we are examining such a bond with a face value P1,000. The yield to maturity is quoted at 16%.  

Bond yields are quoted like APR’s; the quoted rate is equal to the actual rate per period multiplied by the number of periods.

In this case, with a 16% quoted yield and semi-annual payments , the true yield is 8% per six month.

The bond matures in 7 years. What is the bond’s price.

Solutions

Expert Solution

Face/Par Value of bond = P1000

Semi-Annual Coupon Bond = P1000*14%*1/2

= P70

No of coupon payments(n) = No of years to maturity*2 = 7 years*2

= 14%

Semi-annual YTM = 16%/2 = 8%

Calculating the Market price of Bond:-

Price = P577.097 + P340.461

Price = P917.56

So,the Bond Price is P917.56


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