Question

Problem 7-23 Compute Bond Price (LG7-4)

Calculate the price of a 10.5 percent coupon bond with 10 years left to maturity and a market interest rate of 6.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Is this a discount or premium bond?

Problem 7-24 Compute Bond Price (LG7-4)

Calculate the price of a 5.4 percent coupon bond with 10 years left to maturity and a market interest rate of 9.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

  

Is this a discount or premium bond?

Problem 7-25 Bond Prices and Interest Rate Changes (LG7-5)

A 6.60 percent coupon bond with 10 years left to maturity is priced to offer a yield to maturity of 8.2 percent. You believe that in one year, the yield to maturity will be 8.0 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

7-23]

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 6%/2 (Semiannual YTM of bonds = annual YTM / 2. YTM = market interest rate)

nper = 10 * 2 (10 years remaining until maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 10.5% / 2 (semiannual coupon payment = face value * coupon rate / 2)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $1,334.74

This is a premium bond as the price is higher than the face value

7-24]

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 9%/2 (Semiannual YTM of bonds = annual YTM / 2. YTM = market interest rate)

nper = 10 * 2 (10 years remaining until maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 5.4% / 2 (semiannual coupon payment = face value * coupon rate / 2)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $765.86

This is a discount bond as the price is lower than the face value