Question

On April 1st, 2018, Yugo purchased a corporate bond of IJK Limited for its face value of $1,000. The bond pays a 4.5 percent coupon rate, which are paid semi-annually, and it will be maturing on April 1st, 2028. On April 1st, 2020, similar bonds are paying a coupon rate of 2.5 percent, and Yugo plans to sell his bond.

Question 49 (1 point)

What would be the dollar amount of each semi-annual coupon, Yugo would receive? (1 Mark)

Question 49 options:

$45.00

$22.50

$40.00

$20.00

None of the Above

Question 50 (2 points)

What would be the market price of the IJK bonds on April 1st, 2020, based on the market coupon rate?

Question 50 options:

$1,038.78

$1,000.00

$990.59

$995.15

None of the Above

Question 51 (1 point)

What would be the capital gains/loss ($ dollar amount) would Yugo receive from selling the IJK bond? (1 Mark)

Question 51 options:

$38.78

$0.00

-$94.10

-$48.50

None of the Above

Question 52 (1 point)

What would be the capital gains/loss (% percent return) would Yugo receive from selling the IJK bond? (1 Mark)

Question 52 options:

-0.49%

3.88%

-0.94%

0.00%

None of the Above

Answer 1

49. Bond Semiannual Coupon payments = Face Value*Coupon rate/2 = 1000*4.5%/2 = $22.5

50.On April 1st, 2020, bond has 8 years left to maturity and 16 coupon payments pending

and required semi-annual rate = 2.5%/2 = 1.25%

So, Price = 22.5/1.0125+22.5/1.0125^2+...+22.5/1.0125^16+1000/1.0125^16

=22.5/0.0125*(1-1/1.0125^16)+1000/1.0125^16

=$1144.20 (none of the above)

51. Capital Gain = $1144.20- $1000 =$144.20 (none of the above)

52. Capital gain % = 144.20/1000 = 14.42%