Assuming the market rate is 6.5 percent, what is the value of a bond that pays a

Question

Assuming the market rate is 6.5 percent, what is the value of a bond that pays an annual coupon payment, a coupon rate of 8 percent, a par value of $1,000, and a maturity of 10 years.

Is the bond in question 6 selling for a discount, premium, or par?

B.

Find the yield to maturity (YTM) for a bond with the following characteristics: Maturity = 15 years, Coupon Rate = 10%, Coupon Payments made Annually, Par = $1,000.

Bond Selling Price = $1,125

Bond Selling Price = $1,000

Bond Selling Price = $975

c.

Assume that a bond has a coupon rate of 10 percent, makes annual coupon payments, and has a par value of $1,000. Calculate the bond’s value under the following conditions.

The bond matures in 5 years and the YTM is 5%:

The bond matures in 5 years and the YTM is 10%:

The bond matures in 5 years and the YTM is 15%:

The bond matures in 15 years and the YTM is 5%:

The bond matures in 15 years and the YTM is 10%:

The bond matures in 15 years and the YTM is 15%:

Looking at the prices that you calculated in problem 8, what effects do time and YTM have on a bond’s price?

Calculate the single and annual coupon payments assuming the following:

Semiannual bond, Coupon rate of 8 percent, Par value of $1,000:

Annual bond, Coupon rate of 4.5 percent, Par value of $100:

Monthly bond, Coupon rate 12 percent, Par value $850:

Explanation / Answer

Yieldof the bond 6.50% Coupon 8% par 1000.00 Maturity 10 years A.The bond is trading at a premium as its market rate is less than coupon rate B. Coupon 8% par 1000.00 Maturity 15.00 YEARS Bond selling price Yield to maturity 1125 6.6571 % 1000 8 % 975 8.2974 % C. Coupon 10% par 1000.00 Maturity 5 Yield to maturity Bond value 5 1216.47 10 1000 15 832.39 Coupon 10% par 1000.00 Maturity 15 Yield to maturity Bond value 5 1518.98 10 1000 15 863.78 YTM and bond price are inversely propotional ,higher the YTM lower the price of the bond and vice versa Longer the period of bond maturity more its value and demand at same YTM compared to less maturity bond Single and annual coupon Value Semiannual bond, Coupon rate of 8 percent, Par value of $1,000: 40 Annual coupon /2 Annual bond, Coupon rate of 4.5 percent, Par value of $100: 45 Monthly bond, Coupon rate 12 percent, Par value $850: 8.5 Annual coupon/12

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