Question

Biz 322 Bond math assignment 10/2/2020
Please show your math/calculator key strokes (i.e. N=?; I=?; FV=?; I/YR=?)

1.) *$1,000 Face Value* You are considering the purchase of a 15 year zero coupon bond with a face value of 8.25%.
The bond is priced to yield a semiannual return of 8.25%.
How much interest will you receive over the life of the bond?
When will you receive that interest?
What is the price or present value of the bond?


2.) A three year bond with a face value of $1000 pays an annual coupon of 6%.
What would the price be if it is yielding 5%?

3.) A zero coupon bond matures three years from today, has a par value of $1000 and is priced to yield 8.5%, compounded semiannually. What is the price?

Answer 1

Answer : 1) Calculation of Price of Bond or Present value of Bond using Calculator stokres

Using Financial Calculator function of PV

where

N = Number of years to maturity i.e 15 * 2 = 30 (Multipled by 2 as semiannual return)

I =PMT = Coupon Payment i.e 0

FV is the face Value i.e -1000

I/YR = Yield Rate i.e 8.25% / 2 = 4.125% (Divided by 2 as semiannual return)

Price of The Bond will come as 297.41

Interest that will be recived over Life is 702.59 (1000 - 297.41)

Interest will be recived at the time of Maturty.

Answer : 2)

Using Financial Calculator function of PV (Using Excel)

where

N = Number of years to maturity i.e 3

I = PMT = Coupon Payment i.e -60 (1000 * 6%)

FV is the face Value i.e -1000

I/YR = Yield Rate i.e 5%

Price of The Bond will come as 1027.23

Answer : 3)

Using Financial Calculator function of PV

where

N = Number of years to maturity i.e 3 * 2 = 6 (Multipled by 2 as semiannual return)

I = PMT = Coupon Payment i.e 0

FV is the face Value i.e -1000

I/YR = Yield Rate i.e 8.5% / 2 = 4.25% (Divided by 2 as semiannual return)

Price of The Bond will come as 779.01