Question

PART 2 - BOND CALCULATIONS

a) What is the price of a $1,000 par value, semi-annual coupon bond with 16 years to maturity, a coupon rate of 5.40% and a yield-to-maturity of 5.90%?

b) What is the price of a $1,000 par value, 10 year, annual coupon bond with a 5.80% coupon rate and a yield to maturity of 5.50%

c) A 10-year, 6.30% semi-annual coupon bond today and the current market rate of return is 5.60%. The bond is callable in 4 year with a $85 call premium. What price did you pay for your bond?

Answer 1

a. Coupon =5.4%*1000/2 =27
Number of Periods =16*2 =32
Semi annual YTM =5.9%/2 =2.95%
Price of Bond =PV of Coupons +PV of Par Value =27*((1-(1+2.95%)^-32)/2.95%)+1000/(1+2.95%)^32=948.68

b. Coupon =5.8%*1000 =58
Number of Periods =10 =10
Semi annual YTM =5.5%
Price of Bond =PV of Coupons +PV of Par Value =58*((1-(1+5.5%)^-20)/5.5%)+1000/(1+5.5%)^20=1035.85

c. Par Value =1000
Coupon =6.3%*1000/2 =31
Number of Periods =10*2 =20
Semi annual YTM =5.6/2 =2.80%
Price of Bond =PV of Coupons +PV of Par Value =31*((1-(1+2.80%)^-20)/2.80%)+1000/(1+2.80%)^20=1045.47
Price of call Bond =Price of bond -PV of call premium =1045.47-85/(1+2.80%)^(4*2)=977.32