Question

Assume that a bond will make payments every six months as shown on the following timeline​ (using six-month​ periods):

The timeline starts at Period 0 and ends at Period 30. The timeline shows a cash flow of $ 19.86 each from Period 1 to Period 29. In Period 30, the cash flow is $ 19.86 plus $ 1,000.

Period

0

1

2

29

30

Cash Flows

$19.86

$19.86

$19.86

$19.86+$1,000

a. What is the maturity of the bond​ (in years)? (round to two decimal places)

b. What is the coupon rate​ (as a​ percentage)? (round to two decimal places)

c. What is the face​ value? (round to two decimal places)

Answer 1

a. What is the maturity of the bond​ (in years)? (round to two decimal places)

The bond makes payment for every six months it means we have to divide total period by 2 to get annual years.

Thus Maturity of Bond = Total Periods / 2

Maturity of Bond = 30 / 2

Maturity of Bond = 15.00 Years

b. What is the coupon rate​ (as a​ percentage)? (round to two decimal places)

Coupon Rate = (Coupon Per Period / Face Value) * 2

Coupon Rate = (19.86 / 1000) * 2

Coupon Rate = 3.97%

c. What is the face​ value? (round to two decimal places)

Face Value will be equal to maturity value(i.e., additional payment in period 30) = $1000.00