Compute the price of a 5 percent coupon bond with 20 years left to maturity and
ID: 2644520 • Letter: C
Question
Compute the price of a 5 percent coupon bond with 20 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual.) Which statement is correct?
The bond is a discount bond selling at $858.41
The bond is a discount bond selling at $922.34
The bond is a premium bond selling at $858.41.
The bond is a premium bond selling at $922.34.
The bond is a discount bond selling at $858.41
The bond is a discount bond selling at $922.34
The bond is a premium bond selling at $858.41.
The bond is a premium bond selling at $922.34.
Explanation / Answer
PV of all inflow:
Since, bond of $1000 is valued at $858.41, it is being traded at discount.
Year Discounting Factor Inflow PV of Inflow 1 0.9697 25 24.24 2 0.9403 25 23.51 3 0.9118 25 22.80 4 0.8842 25 22.10 5 0.8574 25 21.43 6 0.8314 25 20.79 7 0.8062 25 20.16 8 0.7818 25 19.54 9 0.7581 25 18.95 10 0.7351 25 18.38 11 0.7128 25 17.82 12 0.6912 25 17.28 13 0.6703 25 16.76 14 0.6500 25 16.25 15 0.6303 25 15.76 16 0.6112 25 15.28 17 0.5927 25 14.82 18 0.5747 25 14.37 19 0.5573 25 13.93 20 0.5404 25 13.51 21 0.5240 25 13.10 22 0.5082 25 12.70 23 0.4928 25 12.32 24 0.4778 25 11.95 25 0.4633 25 11.58 26 0.4493 25 11.23 27 0.4357 25 10.89 28 0.4225 25 10.56 29 0.4097 25 10.24 30 0.3973 25 9.93 31 0.3852 25 9.63 32 0.3736 25 9.34 33 0.3622 25 9.06 34 0.3513 25 8.78 35 0.3406 25 8.52 36 0.3303 25 8.26 37 0.3203 25 8.01 38 0.3106 25 7.76 39 0.3012 25 7.53 40 0.2920 25 7.30 0.2920 1000 292.04 858.41Related Questions
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