In: Finance
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?
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.