Question

In: Finance

2. Martha is considering a $1,000 par value bond for all the following scenarios. A. What...

2. Martha is considering a $1,000 par value bond for all the following scenarios. A. What price should Martha pay for this bond if it has an 8% coupon rate paid semiannually, the bond is priced to yield 7% and it has 13 years to maturity? Is this bond a premium or discount bond? B. What is the YTM if the bond was priced at $926, with a semiannual coupon rate of 10%, and 18 years to maturity? C. How long would it take a bond to mature that pays a 5% annual coupon rate, has a yield to maturity of 8%, and is priced at $925? D. What is the coupon rate for an annual coupon bond that has a yield to maturity of 8%, is priced at $845, with 13 years to maturity? E. What is the annual coupon payment on a semiannual bond that has a YTM of 9%, is priced at $648, and matures in 13 years?

Solutions

Expert Solution

a

                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =13x2
Bond Price =∑ [(8*1000/200)/(1 + 7/200)^k]     +   1000/(1 + 7/200)^13x2
                   k=1
Bond Price = 1084.45

It is a premium bond as price is above par value

B.

                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =18x2
926 =∑ [(10*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^18x2
                   k=1
YTM% = 10.95

please ask remaining part separately, following parts are unrelated to previous question


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