Question

q1 - A coupon bond that pays interest semiannually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 6.5%. If the coupon rate is 3.5%, the intrinsic value of the bond today will be

Q-2 you purchased s coupon bond at a price of 1059. the coupon rate for the bond is 5% with a face value of 1000. you sold the bond at 1066.13 one year later. how much us one year holding period return on the bond

Answer 1

I request you to kindly ask the second question separately.

1. Coupon rate is 3.5% and it is paid semiannually. So every 6 months we get 35/2 = 17.5

The annual effective yield is 6.5%. So, for 6 months, the rate would be (1.065^0.5) - 1 = 3.1988%

Now, the equation for price is

P= (17.5/1.031988) + 17.5/(1.031988^2) +... + 1017.5/(1.031988^10)

We can excel to do this. We can use =pv function. As we take 6 month periods, period becomes 10.

Enter =pv(.031988,10,17.5,1000) = 877.66

Thus intrinsic value of bond today is $877.66