Question

A firm has a 10% per annum upon bond and sh 1000 face value .The interest...

A firm has a 10% per annum upon bond and sh 1000 face value .The interest is paid semi -annually and the bond has 20 years to maturity.If investors require 12% per annum yield what is the value of the bond? what will be the yield to maturity if the bond was quarterly?

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Answer #1

We will use the financial calculator to find the answer

Value of the Bond

N = 40 ( Converted into semi annual periods from annual)

I/Y = 6% (converted into semi annual yield)

FV = 1000

PMT = 50 ( converted into half yearly payments @10%)

PV = 849.54

yield to maturity if the bond was quarterly

N = 80 ( Converted into quarterly periods from annual)

FV = 1000

PMT = 25 ( converted into quarterly payments @10%)

PV = 849.54

I/Y = 11.9917%

I have used PV of the bond which is been calculated in first part. Let me know if you have any questions, please post in comments box.

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