Question

1. What is the amount of the annual coupon payment for a bond that has 6 years until maturity, sells for $1,050, and has a yield to maturity of 9.37%? Show your calculations!

1. $98.64
2. $95.27
3. $101.38
4. $104.97

2. Two years ago bonds were issued at par with 10 years until maturity and a 7% annual coupon. If interest rates for that grade of bond are currently 8.25%, what will be the market price of these bonds? Show your calculations!

1. $917.06
   B. $928.84
   3. $987.50
   4. $1,000.00

3. How much should you be prepared to pay for a 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%? Show your calculations!

1. $411.84
   B. $897.04
   3. $985.00
   4. $1,000.00

Answer 1

1. Par value =1000
Number of Periods =6
PV of Bond =1050
YTM =9.37%
Price of Bond =PV of Coupons+PV of Par value Value
1050 =COUPON*((1-(1+9.37%)^-6)/9.37%)+1000/(1+9.37%)^6
1050-1000/(1+9.37%)^6 =Coupon*4.43686070380554
465.733847946579 =Coupon*4.43686070380554
Coupon =465.733847946579/4.43686070380554 =104.97 (Option d is correct option)

2. Number of Periods left =10-2 =8
Annual Coupon =7%*1000 =70
YTM =8.25%
Price of Bond =PV of Coupons+PV of Par value Value =70*((1-(1+8.25%)^-8)/8.25%)+1000/(1+8.25%)^8 =928.84 (Option b is correct option)

3. Number of Years =10
Annual Coupon =6%*1000 =60
YTM =7.5%
Price of Bond =PV of Coupons+PV of Par value Value
=60*((1-(1+7.5%)^-10)/7.5%)+1000/(1+7.5%)^10 =897.04(Option b is correct option)