Question

A bond pays 7% annual interest in semi-annual payments for 10 years. The current yield on similar bonds is 9%. To determine the market value of this bond, you must find the interest factors (IFs) for 10 periods at 7%. find the interest factors (IFs) for 20 periods at 4.5%. find the interest factors (IFs) for 10 periods at 9%. find the interest factors (IFs) for 20 periods at 3.5%.

Answer 1

1. Market value of bond when N= 10 and Coupon rate is 7%

Here, FV=1000 (ASSUME WHEN NOT GIVEN), I/Y= 9/2=4.5 (because semi annual bond), PMT= 0.07*1000/2= 35 (SINCE coupon payment will also be semi annualy paid) AND N=10*2=20 since semi annual bond so periods will get doubled.

Thus, using financial calculator BA II plus, Compute PV= -869.9206

2. Market value of bond when N= 20 and Coupon rate is 4.5%

Here, FV=1000 (ASSUME WHEN NOT GIVEN), I/Y= 9/2=4.5 (because semi annual bond), PMT= 0.045*1000/2= 22.5 (SINCE coupon payment will also be semi annualy paid) AND N=20*2=40 since semi annual bond so periods will get doubled.

Thus, using financial calculator BA II plus, Compute PV= -585.9643

3. Market value of bond when N= 10 and Coupon rate is 9%

Here, FV=1000 (ASSUME WHEN NOT GIVEN), I/Y= 9/2=4.5 (because semi annual bond), PMT= 0.09*1000/2= 45 (SINCE coupon payment will also be semi annualy paid) AND N=10*2=20 since semi annual bond so periods will get doubled.

Thus, using financial calculator BA II plus, Compute PV= -1000