Question

11.A 8-year bond with a face value of $2000 is redeemable at par and earns interest at 9.2% convertible semiannually. If the yield rate is 6.9% convertible semiannually, find the book value 4 months after the payment of the 7th coupon. (Use simple interest for time between coupon payments.)

Value = $ (3 decimal place)

Answer 1

Initial Value of Bond is present value of interest payments and redemption.

Half Year	Payments	PVIF/PVIFA	PV of Payments
1-16	92	12.1397	1,117
16	2000	0.5812	1,162
			2,279

Bond Amortization Schedule:

Half Year	Beginning Bond Value	Interest Expense	Interest Payment	Ending Value Bond
1	2,279	79	92	2,266
2	2,266	78	92	2,252
3	2,252	78	92	2,238
4	2,238	77	92	2,223
5	2,223	77	92	2,208
6	2,208	76	92	2,192
7	2,192	76	92	2,175
8	2,175	75	92	2,158
9	2,158	74	92	2,141
10	2,141	74	92	2,123
11	2,123	73	92	2,104
12	2,104	73	92	2,085
13	2,085	72	92	2,064
14	2,064	71	92	2,044
15	2,044	71	92	2,022
16	2,022	70	2,092	-

Bond Book Value 4 months after the payment of 7th Coupon = Bond Value at the end of 7th Half Year + Interest for 4 months on outstanding amount

=2,175 + (2175*6.9%*4/12) = 2175+50 = $2,225