Question

In: Finance

Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods)

Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods):

The timeline starts at Period 0 and ends at Period 50. The timeline shows a cash flow of $ 20.92 each from Period 1 to Period 49. In Period 50, the cash flow is $ 20.92 plus $ 1,000.

Period

0

1

2

49

50

Cash Flows

$20.92

$20.92

$20.92

$20.92+$1,000

a. What is the maturity of the bond (in years)?

b. What is the coupon rate (as a percentage)?

c. What is the face value?

Solutions

Expert Solution

a.Since payments are made every six years, Maturity of the bond = 50 / 2 = 25 years.

b.Coupon rate = $20.92*2 / $1,000

= $41.84 / $1,000

= 0.0418*100

= 4.18%.

c.The face value of the bond is repaid at maturity. Therefore, the face value is $1,000.


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