Question

5. A bond that yields 6% pays a coupon of $20 semi-annually. Which of the following is most likely the price of the bond?
6. What is the coupon rate for the bond? Assume semi-annual payments. Answer as a percent!

Bond	Coupon Rate	Yield	Price	t
Apple B	?	5.1%	1012.5	14

semi annual means 6 months.

Answer 1

6)

Price of the bond is present value of future cash flows discounted at YTM

given t = 28 periods (since semiannual periods = 14*2 = 28)

YTM per period = 5.1% / 2 = 2.55%

Current price = 1012.5

Using Financial calculator

[N =28 ; I/Y = 2.55% ; PV = -1012.5 ; FV = 1000] compute for PMT

semi annual coupon = 26.13

annual coupon = 26.13*2 = 52.26

coupon rate = 52.26 / 1000

= 5.226%(rounded to three decimals)

5)

to calculate the price of the bond we need time period(t) which is not given in question.also options are not provided.

How ever it is given semi annual coupon = $20

annual coupon = 20* 2 = 40

coupon rate = 40 / 1000 = 4%

YTM = 6%

When YTM > Coupon rate, bond will trade at discount.i.e., bond value will be less than $1000.

In the given options choose the value which is less than $1000. (since time period is not given this is the only method to answer this question)