A bond is issued for $100,000,000 for 25 years, amortizing quarterly. It was issued at par...

A bond is issued for $100,000,000 for 25 years, amortizing quarterly. It was issued at par with a yield of 5% (at inception the coupon was also 5%). 18 years have gone by. At 18 years, the coupon remains at 5% but the yield has dropped to 3% YTM.

a. Provide the estimated price factor

. b. If the bid/ ask price is 93/95, as an investor with $200,000, how many of these bonds can you buy?

c. Excluding accrued interest, after you buy the bonds, what will the value of your account be (on the broker’s website or your statement)?

Expert Solution

Summary of solution:

Price of a bond is calculated by discounting the coupon payments, principal amount paid at maturity using YTM rate.account value in broker statement represents the market value of all holdings plus liquid cash in account.

jeff jeffy answered 2 years ago

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