Question

1) A 9-year bond with a face value of 1000 dollars is redeemable at twice par and earns interest at 10 percent convertible semiannually. If the yield rate is 7.5 percent convertible semiannually, find the book value two months after the payment of the 13th coupon. (Recall that we use simple interest for points in time between coupon payments.)

2) Suppose that a 12-year bond with a face value of 2500 dollars is redeemable at par and pays semiannual coupons that increase by 1.6 percent per coupon. If the last coupon is for 80 dollars and the yield rate is 7.7 percent convertible semiannually, what is the book value of the bond immediately after the 11th coupon is paid?

Answer 1

	1
	Rate	Semi annual Yield Rate=(7.5/2)%	3.75%
	Nper	Number of Semi annual coupons after 13th	5	((9*2)-13)
	Pmt	Semi annual coupon amount =(1000*10%)/2	$50
	Fv	Payment at maturity	$2,000
	PV	Value of Bond after 13th Coupon	$1,887.92
		(Using PV function of excel)
		Two months interest =50*(2/12)	$8.33
		Book Value 2 months after 13th coupon is paid	$1,896.25	(1887.92+8.33)
	2
		Present Value of Cash Flow=(Cash Flow)/(1.1^N)
		i=discount rate=(7.7/2)%	3.85%	-0.0385
		N=Period of Cash Flow
		Amount of 12th coupon =80*1.016	$81.28
		Amount of 13th coupon =81.28*1.016	$82.58
		Semi annual period after 11th Coupon is paid
			N	A	B=A/(1.0385^N)
		Coupon No.	Semi annual Period	Coupon Payment	Present Value
		12th	1	$81.28	$78.27
		13th	2	$82.58	$76.57
		14th	3	$83.90	$74.91
		15th	4	$85.24	$73.29
		16th	5	$86.61	$71.70
		17th	6	$87.99	$70.15
		18th	7	$89.40	$68.63
		19th	8	$90.83	$67.14
		20th	9	$92.29	$65.69
		21st	10	$93.76	$64.26
		22nd	11	$95.26	$62.87
		23rd	12	$96.79	$61.51
		24th	13	$98.34	$60.18
		Payment at maturity	13	$2,500	$1,529.87
				SUM	$2,425.03
		Book Value immediately after 11th Coupon is paid	$2,425.03