p7-13 An 8% semiannual coupon bond matures in 5 years. The bond hasa face value

Question

p7-13 An 8% semiannual coupon bond matures in 5 years. The bond hasa face value of $1,000 and a current yield of 8.21%.What is thebonds price and YTM? p7-17 you are considering a 10 year,$1000 par value bond.Its couponrate is 9%, and interest is paid semianually. If you require an"effective" annual interest rate ( not a nominal rate) of8.16%,then how much should you be willing to pay for thebond? p7-13 An 8% semiannual coupon bond matures in 5 years. The bond hasa face value of $1,000 and a current yield of 8.21%.What is thebonds price and YTM? p7-17 you are considering a 10 year,$1000 par value bond.Its couponrate is 9%, and interest is paid semianually. If you require an"effective" annual interest rate ( not a nominal rate) of8.16%,then how much should you be willing to pay for thebond?

Explanation / Answer

10 years

Semiannual Coupon Rate 8% Number of Years to Maturity 5 Face Value of the Bond $1,000 Current Yield 8.21% CurrentYield = Annual Coupon / Current Price of theBond 0.0821 = $80 / Current Price of theBond Current Price of the Bond = $80 /0.0821 Current Price of theBond = $974.42 Calculating Yield to Maturity(YTM: (Using Ms-Excel "RATE"Function) Number of Periods (Nper) 5 Annual Coupon Payment (PMT) [$1000*8% / 2] -$40.00 Present Value of the Bond (PV) $974.42 Future Value of the Bond (FV) -$1,000.00 Expected Rate of Return on a bond (Rate) 4.6% Annual YTM = 4.6 *2 = 9.20% Face Value (or) Par Value of the Bond $1,000 Number of Years to Maturity

10 years

Coupon Rate (Interest paid semianually) 9% Effective Annual Interest Rate (or) Yield 8.16% Calculating BondValue: BondValue = $45 *   [1-1/(1+0.0408)10*2] / 0.0408   + $1,000 / (1+0.0408)10*2 BondValue = $45 *   [1-1/(1.0408)20] / 0.0408   + $1,000 /(1.0408)20 BondValue = $45 *   13.494559  + $449.42 BondValue = $607.25 + $449.42 Bond Value =$1,056.67

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