A 10 year 1000 bond with 7% semi-annual coupons is bought for a price to yield...

A 10 year 1000 bond with 7% semi-annual coupons is bought for a price to yield 6.5% conv. semiannually. It is bought on Feb 1, 2003. Find the actual selling price on Dec. 31, 2003. Find the price quoted in paper (full) on Dec 31, 2003. Use 30/360.

Expert Solution

First let's price the bond on 1st Feb 2004, exactly one year from sale date. 9 years left in expiration.

Value of bond comes to $1,039. Interest received on 31st January 2004 would be added in this @35.

Net value of bond = $1,074. To arrive at value on 31 Dece, lets discount this by one more month.

Formula used in excel and also below to find the present value = FV / (1+rate/ no. of period)^ no. of period

= 1.074*(1+6.5%/12) = $1,068.21 (ANSWER)

PV annuity factor is calculated using the following formula :

Valuation on 1st Feb 2004 YTM Semi Annual 6.50% 3.25% [email protected]% for 18 installments 13.47 18 Installments because 9 years*2 payments every year Semiannual payment 35.00 =1000*7%/2 PV of all the payments 471.35 =F10*F12 PV of face value 567.35 =1000/(1+6.5%)^9 Value of bond 1,039

jeff jeffy answered 1 year ago

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