Question

Hamilton, Inc. bonds have a coupon rate of

1414

percent. The interest is paid​ semiannually, and the bonds mature in

77

years. Their par value is

​$1 comma 0001,000.

If your required rate of return is

1212

​percent, what is the value of the​ bond? What is the value if the interest is paid​ annually?a. If the interest is paid​ semiannually, the value of the bond is

​$nothing.

​(Round to the nearest​ cent.)b. If the interest is paid​ annually, the value of the bond is

​$nothing.

​(Round to the nearest​ cent.)

Answer 1

a

K = Nx2

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

k=1

K =7x2

Bond Price =∑ [(14*1000/200)/(1 + 12/200)^k]     +   1000/(1 + 12/200)^7x2

k=1

Bond Price = 1092.95

b

K = N

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

k=1

K =7

Bond Price =∑ [(14*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^7

k=1

Bond Price = 1091.28