(calculating the present value of a bond with semi-annual coupon interest paymen
ID: 2382359 • Letter: #
Question
(calculating the present value of a bond with semi-annual coupon interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a yield to maturity (YTM) of 4.2%, what should be its price in the bond market (ie, PV)?
9. (calculating the YTM of a bond with semiannual interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a market price of $1,223.92, what is its yield to maturity (YTM)?
11. Assume the real risk-free rate is 1%. Assume also that inflation is expected to be 1% in the coming year (year 1), 2% in the next year after that (year 2), and 3% in the year after that (year 3). Assume also that the default risk premium, the liquidity premium, and the maturity risk premium are 0%. Given these conditions, what would be the yield on three-year treasury bonds today?
12. Suppose the First Bank of St Louis was offering the following rates on certificates of deposit (CDs) this week:
Maturity Rate
3 month 1.50%
6 month 1.75%
1 year 2.00%
2 year 2.25%
3 year 2.50%
5 year 2.75%
10 year 3.00%
20 year 3.15%
a. Plot the above data on a yield curve. Label the graph and the axes appropriately.
b. Comment on the implications of this curve to you, as a potential investor in CDs.
Explanation / Answer
Answer:8 Present Value=Interest*PVIFA(2.1,48)+Principal*PVIF(2.1,48)
I used Excel here too!
The PV finance function Where Rate = 0.021, NPER = 48, PMT = 28.50, FV = 1000 PV with Semi-annual interest payments = 1225.44
Answer:9 I used Excels Rate finance function.
Where
NPER = 48,
PMT = 28.50,
PV = -1223.92, F
V = 1000
Rate = 2.1044% * 2 = 4.21%
YTM with Semi-annual interest payments = 4.2%
Answer:11 r nom =r*+IP+DRP+LP+MRP
r=1+[(1+2+3)/3]+0+0+0
r=3%
Answer:12
b.The upward slop shows a normal yield curve. Bonds will longer maturity time periods should have a higher pay amount.
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