Question

A) As with most bonds, consider a bond with a face value of $1,000. The bond's...

A)

As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 22 years, the coupon rate is 12% paid annually, and the discount rate is 12%.

What is this bond's coupon payment?

B)

A bond offers a coupon rate of 14%, paid semiannually, and has a maturity of 6 years. Face value is $1,000. If the current market yield is 5%, what should be the price of this bond?

Homework Answers

Answer #1

A. The bond's coupon payment is computed as shown below:

= Coupon rate x Face value

= 12% x $ 1,000

= $ 120

B. The price of the bond is computed as shown below:

The coupon payment is computed as follows:

= 14% / 2 x $ 1,000 (Since the payments are semi annually, hence divided by 2)

= $ 70

The YTM will be as follows:

= 5% / 2 (Since the payments are semi annually, hence divided by 2)

= 2.50% or 0.025

N will be as follows:

= 6 x 2 (Since the payments are semi annually, hence multiplied by 2)

= 12

So, the price of the bond is computed as follows:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)n ] / r ] + Par value / (1 + r)n

= $ 70 x [ [ (1 - 1 / (1 + 0.025)12 ] / 0.025 ] + $ 1,000 / 1.02512

= $ 70 x 10.2577646 + $ 743.555885

= $ 1,461.60 Approximately

Feel free to ask in case of any query relating to this question      

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
7. A) As with most bonds, consider a bond with a face value of $1,000. The...
7. A) As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 27 years, the coupon rate is 14% paid annually, and the market yield (discount rate) is 5%. What should be the estimated value of this bond in one year? Assume the market yield remains unchanged. Enter your answer in terms of dollars, rounded to the nearest cent. B) As with most bonds, consider a bond with a face value of $1,000....
As with most bonds, consider a bond with a face value of $1,000. The bond's maturity...
As with most bonds, consider a bond with a face value of $1,000. The bond's maturity is 12 years, the coupon rate is 10% paid annually, and the discount rate is 12%. What should be the estimated value of this bond in one year? Enter your answer in terms of dollars, rounded to the nearest cent.
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a...
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 4%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve. 6-month spot rate: 3.2%. 12-month: 5%. 18-month: 5.5%. 24-month: 5.8%.
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a...
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 4%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve. 6-month spot rate: 3.2%. 12-month: 5%. 18-month: 5.5%. 24-month: 5.8%.
1. A bond's par value can also be called its coupon payment. present value. market value....
1. A bond's par value can also be called its coupon payment. present value. market value. face value. 2.Horizon offers a 12 percent coupon bond with semiannual payments and a yield to maturity of 10 percent. The bonds mature in 16 years. What is the market price per bond if the face value is $1,000? $808 $911 $1,000 $1,158
A bond with a face value of $1,000 has 14 years until maturity, has a coupon...
A bond with a face value of $1,000 has 14 years until maturity, has a coupon rate of 7.6% and sells for $1,089 What is the current yield on the bond? What is the yield to maturity if interest is paid once a year? What is the yield to maturity if interest is paid semiannually?
Microgates Industries bond has a 10 percent coupon rate and a $1,000 face value. Interest is...
Microgates Industries bond has a 10 percent coupon rate and a $1,000 face value. Interest is paid semi-annually, and the bond has 20 years to maturity. If investors require a 12 percent yield, what is the bond's value?
1. Calculate the price of a bond with Face value of bond is $1,000 and: a....
1. Calculate the price of a bond with Face value of bond is $1,000 and: a. Bond yield of 8.4%, coupon rate of 7% and time to maturity is 5 years. Coupon is paid semi-annually (Bond 1) b. Bond yield of 7%, coupon rate of 8% and time to maturity is 4 years. Coupon is paid semi-annually c. Calculate the price of Bond 1 right after the 5th coupon payment.
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a...
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 5%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve. 6-month spot rate: 3.1%. 12-month: 5%. 18-month: 5.5%. 24-month: 5.8%. Assume semi-annual compounding. Round your answer to the nearest cent (2 decimal places).
WTA bonds have a 5.80% coupon rate and paid annually. The face value is $1,000 and...
WTA bonds have a 5.80% coupon rate and paid annually. The face value is $1,000 and the current market price is $975. The bonds mature in 16 years. What is the yield to maturity?