Question

Please answer all question not just one question. its important to answer all please
1. A bond that sells for greater than $1000 when yields are 10% must have an annual coupon that is greater than $100. (T/F)
2. A bond that sells for less than $1000 when yields are 10% must have a semi-annual coupon that is less than $50. (T/F)
3. A 10-year zero-coupon bond that currently has a yield to maturity of 1.8% . What is the value of the bond? Assume semi-annual compounding.
4. A bond that yields 5% pays a coupon of $30 semi-annually. Which of the following is most likely the price of the bond?

		$990
		$1000
		$1050
		Not enough information to determine.

Answer 1

Solution

1)

True

If price is more than par, coupon rate is more than yield. Hence, coupon rate is more than 10%. Annual coupon is more than 100. Semiannual coupon is greater than 50

2)

True

If price is less than par, coupon rate is more than yield. Hence, coupon rate is less han 10%. Annual coupon is less than 100. Semiannual coupon is less than 50

3)

For A zero coupon bond,

Price of the bond = Face Value / (1+ytm/2)^(number of period)

semi -annual YTM = 0.018/2 = 0.009

Number of period = 10*2 = 20

Face Value = 1000

Price of the bond = 1000 / (1+ 0.009)^20 = 835.943

4)

Here annual coupon rate is greater than yield rate (6%)

Hence the price of the bond will more than par value (1000)

Hence option C