Question

Complex finance problems using Excel.

1. Compost International issued $1000 bonds on May 12, 2000 in order to finance world-wide expansion. The bonds have a coupon rate of 8.4% with payments on a semi-annual basis (November 12, May 12) and mature on May 12, 2020. You purchased one of Compost’s $1000 bond on June 25, 2004 and plan to hold the bond to maturity. The bond has a list price of $1090 (not including accrued interest).

Compute the semi-annual coupon payment, the accrued interest, the invoice price of the bond, and the Yield to Maturity (YTM) of your bond.

Answer 1

1). Semi-annual coupon payment = annual coupon rate*par value/2 = 8.4%*1,000/2 = 42

2). Accrued interest = Semi-annual coupon payment *(number of days since the last coupon payment/number of days between coupon payments)

Accrued interest = 42*a/b = 42*44/184 = 10.04

3). Invoice price = list price + accrued interest = 1,090 + 10.04 = 1,100.04

4). YTM for the bond:

YTM of the bond = 7.42%