1. Compute the price of a 7.5 percent coupon bond with ten years left to maturit

Question

1. Compute the price of a 7.5 percent coupon bond with ten years left to maturity and a market interest rate of 8.0 percent. (Assume interest payments are semiannual. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Bond price $____________?

2. A 4.80 percent coupon bond with 16 years left to maturity is offered for sale at $964.11. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.) Yield to maturity __________%?

3. A 5.70 percent coupon bond with 17 years left to maturity can be called in eight years. The call premium is one year of coupon payments. It is offered for sale at $1,136.90. What is the yield to call of the bond? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.) Yield to call__________%?

1.

Explanation / Answer

market rate = 4% semi annual

let face value price be 100

coupon payment every 6 months = 100*.075*.5= 3.25

time = 10*2= 20 periods

using excel or financial calculator,

pv of bond = 96.60

bond price =96.60% of face value

present value of bond = 964.11

face value price = 1000

coupon payment every 6 months = 1000*.048*.5= 24

time = 16*2= 32 periods

using excel or financial calculater,

yield of bond = 2.57 for 6 months

yearly yield = 2.57*2= 5.13

yield t o call means the bond will be called in 8 years

call premium=5.70% of 1000 = 57

means the bond will be called at 1000+57=1057

timeperiod = 8*2=16

coupon payment for 6 months = 5.70%*1000*.5= 28.5

currrent price = 1136.90

yield to call = 2.14 for 6 months,

annual rateof yield to call = 4.28%

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