Question

A $1000 bond with coupons at 6%, convertible semiannually, matures at par in 10 years. The...

A $1000 bond with coupons at 6%, convertible semiannually, matures at par in 10 years. The bond is sold in 22 months with an annual yield to maturity of 8%. Find the sale price assuming simple interest between coupon payments.

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Homework Answers

Answer #1

Par value = $1,000

Semiannual coupon payment = $1,000 × 6% / 2

= $30

interest for 2 month from 22th month to 24 month = $30 × 2 / 6

= $10.

Accrued interest for 4 month from 18th month to 22 month is $20.

After 24 months, number of year remains in maturity of bond will be 8 year. So price of bond after 24 month is calculcated in excel and screen shot provided below:

So price of bond after 24 month is $883.48.

Price of bond after 22 month = $883.48 - $10

= $873.48

Price of bond after 22 month is $873.48.

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