Question

1. Consider a $1,000 par value bond with a maturity of 8 years and a coupon of 7%. If you require a return of 9% on the bond what is the maximum price you would pay for the bond?

2. You have a bond that matures in 20 years with a maturity value of $1,000. If the bond has an 8% semiannual coupon and the market requires a return of 7% on the bond, what is the current market price of the bond?

3. You are interested in purchasing a bond with no maturity date. The bond has a stated par value of $1,000 and a stated 3% coupon. Given the low level of risk that will be taken with the purchase, you require a return of only 5%. What is the maximum price you would pay to purchase the bond?

4. A bond maturing in 15 years has a coupon of 7.5% and a par value of $1,000. If you purchase the bond for $1,145.68: a. What is your current yield? b. What is your yield to maturity?

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =8x2

Bond Price =∑ [(7*1000/200)/(1 + 9/200)^k]     +   1000/(1 + 9/200)^8x2

k=1

Bond Price = 887.66

2)

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =20x2

Bond Price =∑ [(8*1000/200)/(1 + 7/200)^k]     +   1000/(1 + 7/200)^20x2

k=1

Bond Price = 1106.78

please ask remaining parts separately, questions are not related, I have done one bonus