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**

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