Question

Henry is planning to purchase a Treasury bond with a coupon rate of 1.69% and face value of $100. The maturity date of the bond is 15 May 2033.

(b) If Henry purchased this bond on 2 May 2018, what is his purchase price (rounded to four decimal places)? Assume a yield rate of 3.97% p.a. compounded half-yearly. Henry needs to pay 23.2% on coupon payment as tax payment and tax are paid immediately.

Select one:

a. 70.5649

b. 70.5665

c. 71.3047

d. 69.9169

Answer 1

First we need to know what are the informations given here :

Face value of the bond= $100

Coupon rate = 1.69%

Yield rate = 3.97%

Time to maturity= 15yrs

Number of period = 30 as it is compounded half yearly

Now, the formula to find the price of the bond is =

Here, is the coupon rate = 1.69%

YTM=3.97%

P=100

i=1.69%

n=30

Price of the bond = $74.42

Now, We need to find the coupon amount

The formula is Coupon Amount= F*C/n

Coupon Amount = 100*1.69/2

here F= Face Value=100, C= 23.2%,n= 30

So, F=100*23.2%/30=.77.33

77.33-74.42=2.91

So , the purchase price of bond = 74.42-2.91=71.3

correct option is (c)=71.3047