Question

1) A $100 face value bond offers a coupon rate of 10% and a yield rate of 13%. If the bond is priced at $90 then in how long (rounded to the nearest half year) should the bond mature?

Note: All bonds give semiannual coupons and the face value back at maturity. All rates are nominal semiannual rates.

Answer 1

As per the details given n the question-
Enter the stroke in the financial calculator-
FV = 100
PV = -90
PMT = 5 (100*10% = 10 /2 i.e.5, coupon is made semiannually)
I/Y = 6.30 ( half yearly interest)
CPT- N =10.85 or
11 half years or 5.5 years

Interest is calculated by = (1+rate)^(1/12)
Interest = (1+0.13)^(1/2) =6.30

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