Question

1.What is the yield on a 11-year bond that pays a semi-annual coupon of $18 and sells for $1000. Answer as a percent.

2.You are looking at a 7-year zero-coupon bond that has a yield to maturity of 2.3% . What is the value of the bond? Assume semi-annual compounding.

3.What is the coupon rate for the bond? Assume semi-annual payments. Answer as a percent!

Bond	Coupon Rate	Yield	Price	t
Apple B	?	2.3%	$990.90	2

4. A bond has a coupon rate of 9.2% and pays coupons annually. The bond matures in 20 years and the yield to maturity on similar bonds is 3.8%. What is the price of the bond?  

please answer with formula

Answer 1

ANSWER 1:

GIVEN : Bond Selling price = $1000 , semi annually coupon = $18 ( will receive this twice)

Yield = (Coupon / Sale Value of Bond )*100

= (36/1000)

= 3.6 %

  

ANSWER 2:

Zero Coupon bond are those bond which are issued at discount and no interest are provided on these dividend.

In that case we can say that Discount given at the time of issue of bond itself is the return of these bond.

If we assume that the face value of the bind is $1000 then this bond will be issued at discount i.e. 2.3%

Value of the bond will be 1000 -2.3% = $977

Answer 3 :

Coupon rate mean the rate at which investor will receive the interest on bond.

In this case they already had given that coupon rate is 2.3%

Investor will receive the dividend twice that is 2.3 /2 = 1.15 ( semi annually)

We can say that coupon rate is 2.3% itself.

Answer 4:

Coupon rate = 9.2% YTM = 3.8 %    Maturity 20 years Interest Annually

(Assumed that face value of bond is $1000  therefore interest will be $92)

Price of the bond is present value of all future cash payment i the form of intetest and redemption.

= Present value of interest + Present Value of redemption

= 92 * PVAF of 3.8% for 20 years + 1000 * Present value factor ( 20th year of 3.8 %)

= 92 * 13.8342 + 1000 * 0.4743

= 1272.7464 + 474.30

= 1747.0464

Value of the bond is $ 1747.0464