Question

BONDS VALUATIONS PRACTICE

1. A bond maturing in 20 years at a par value of $1,000 has a coupon rate of 6% and current yield of 8%. Is this a discount bond or a premium bond? What is the price of the bond?

2. A bond maturing in 15 years at a par value of $1,000 has a coupon rate of 4% and current yield of 3%. Is this a discount bond or a premium bond? What is the price of the bond?

3. A bond maturing in 10 years at a par value of $1,000 has a coupon rate of 9% and current market price of $1,145.68. What is the bond’s annual yield?

4. A bond maturing in 15 years at a par value of $1,000 has a coupon rate of 5%. If the current interest rate is 4%, what is the price of the bond?

5. A bond maturing in 15 years at a par value of $1,000 has a coupon rate of 7% and current market price of $1,140.95. If the bond is callable after 5 years at $1,050, what is the bond’s yield to call? (Hint: Click on YTC tab in the Bond Calculator app).

Answer 1

1

current yield = coupon rate*par value/current price

8=(6/100)*1000/Bond price

Bond price = 750

Bond is a discount bond as price is less than par value

2

current yield = coupon rate*par value/current price

3=(4/100)*1000/Bond price

Bond price = 1333.33

Bond is a premium bond as price is more than par value

3

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

1145.68 =∑ [(9*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10

k=1

YTM% = 6.93

Please ask remaining parts seperately, questions are unrelated and not sub parts... I have done 2 bonus