Question

a
bond was issued 5 years ago at par with a maturity of 10 years, a
yield-to-maturity of 6.50% compounded semiannually and semi annual
coupons. what is the price of this bond today immediately after the
receipt of today's coupon if the YTM has fallen to 5.50% compounded
semi annually?

Answer #1

Sol:

Face value (FV) = $1000 (assumed)

Rate of interest = 5.5% (Semiannually) 5.50%/2 = 2.75%

Period = 5 years (Semiannually) = 5 x 2 = 10

Yield = 6.5% (Semiannually) = 6.5%/2 = 3.25%

PMT = 1000 x 3.25% = $32.5

Price of bond today is the present value of future cash flows.

Present value (PV) = (PMT x (1-(1+r)^-n)/r) + (FV/(1+r)^n)

PV = (32.5 x (1-(1+2.75%)^-10)/2.75%) + (1000/(1+2.75%)^10

PV = (32.5 x (1-(1+ 0.0275)^-10)/0.0275) + (1000/(1+0.0275)^10

PV = (32.5 x 8.6401 + 762.3979

PV = 280.8033 + 762.39789

**PV = $1043.20**

**Therefore present value of this bond
today will be $1043.20**

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maturity of six years, a yield-to-maturity (YTM) of 4.75%
compounded semi-annually, and a face value of $1,000 with
semi-annualy coupons. What is the price of this bond today
immediately after the receipt of today's coupon if the YTM has
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semi-annualy coupons. What is the price of this bond today
immediately after the receipt of today's coupon if the YTM has
risen to 6.50% compounded semi-annually?

A bond was issued three years ago at a price of $1,040 with a
maturity of six years, a yield-to-maturity (YTM) of 5.25%
compounded semi-annually, and a face value of $1,000 with
semi-annualy coupons. What is the price of this bond today
immediately after the receipt of today's coupon if the YTM has
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options: $985
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compounded semi-annually, and a face value of $1,000 with
semi-annualy coupons. What is the price of this bond today
immediately after the receipt of today's coupon if the YTM has
fallen to 3.50% compounded semi-annually?
Question 14 options:
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