Question

1. i) A bond with a par value of $1000 makes semiannual coupon payments of $40. What is its coupon rate?

ii) A semiannual coupon bond with face value of $1000 has a coupon rate of 8% and matures in 11 years. The market-determined discount rate on this bond is 13%. What is the price of the bond? Round to the penny.

iii) A semiannual coupon bond with coupon rate of 4.5% and face value of $1000 trades at $1200. It matures in 6 years. What is its yield to maturity (YTM)? Answer in percent and round to two decimal places.

Answer 1

i)	Coupon rate = $40/1000*6m/12m
		=8%
ii)	Computation Of Bond Price
	a	Annual Interest Amount	$         80.00
		($1000*8%)
	b	PV Annuity Factor for (11 Years,13%)	5.686941
	c	Present Value Of Annual Interest (a*b)	$       454.96
	d	Redemption Value	$   1,000.00
	e	PV Factor Of (11 Years,13%)	0.26070
	g	Present Value Of Redemption Amount (d*e)	$       260.70
	f	Intrinsic Value ( Price ) Of The Bond (c+g)	$       715.65
iii)	C	22.5
	n	12
	P	1000
	Bond Price	1200
	Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n]
	Where,
	C= Coupon amount
	YTM = Yield To maturity
	n = Number of periods
	P= Par value
	$1200=22.5 * [1 - (1 + YTM)^-12 / YTM] + [1000 / (1 + YTM ) ^12]
	YTM =	0.53% (for six monthly)
		1.06% (annually)