Question

Microhard has issued a bond with the following characteristics.

Par $1,000

Time to maturity 20 years

Coupon rate 7%

Semi-annual payments

Calculate the price of this bond if the YTM is

7%

9%

5%

Answer 1

Req a:
n = 40
I = 3.5%
Cashflows				Amount	PVF	Present value
Semi annual interestt (1000*7%*6/12)				35	21.35507	747.4275
Principal amount				1000	0.252572	252.572
Price of bonds						1000
Req b:
n = 40
I = 4.50%
Cashflows				Amount	PVF	Present value
Semi annual interestt (1000*7%*6/12)				35	18.40158	644.0553
Principal amount				1000	0.171929	171.929
Price of bonds						815.9843
Req c:
n = 40
I = 3.5%
Cashflows				Amount	PVF	Present value
Semi annual interestt (1000*7%*6/12)				35	25.10278	878.5973
Principal amount				1000	0.372431	372.431
Price of bonds						1251.028