Question

1. What is the value of a bond that has a par value of 1,000, a coupon rate of 7% (semi-annually), and matures in 10 years? Assume a required return of 5.5%. $1,114.20 $1,102.18 $1,087.62 $1,058.34

2. What is the yield-to-maturity of a 5.0% semi-annual coupon bond with a $1,000 par value, which matures in 3 years? Assume the current market price of the bond is $1,081.95.

		1.08%
		2.15%
		2.16%
		5.00%

Answer 1

1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

Bond Price =∑ [(7*1000/200)/(1 + 5.5/200)^k]     +   1000/(1 + 5.5/200)^10x2

k=1

Bond Price = 1114.2

2

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =3x2

1081.95 =∑ [(5*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^3x2

k=1

YTM% = 2.16