Consider a bond with a par value of 1,000 paying a coupon rate of 12% per year s

Question

Consider a bond with a par value of 1,000 paying a coupon rate of 12% per year semiannually when the market interest rate is only 3% per half year. The bond has 3 years until maturity.

Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

What is the total rate of return on the bond per six months? (Round your answer to the nearest whole number. Omit the "%" sign in your response.)

Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Answer:(a)

Current price=$60*PVIFA(3%,6)+$1000*PVIF(3%,6)

=1162.52

Price 6 months from now = $60×Annuity factor(3%, 5) + $1000×PV factor(3%, 5) = $1137.39

Answer:(b) rate of return=[60+(1137.39-1162.52)]/1162.52

=3.00%

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