Question

A.Bond Prices A $1,000 par bond that pays interest semiannually has a quoted coupon rate of 7%, a promised yield to maturity of 7.7% and exactly 6 years to maturity. What is the bond's current value?

B.Bond Prices A $1,000 par bond that pays interest semiannually has a quoted coupon rate of 5%, a promised yield to maturity of 5.7% and exactly 11 years to maturity. The present value of the coupon stream represents ______ of the total bond's value.

C. Bond Yields Find the promised yield to maturity for a 7% coupon, $1,000 par 15 year bond selling at $946.22. The bond makes semiannual coupon payments.

Answer 1

Bond price = Coupon/(1+r)^t + Par Value/(1+r)^t

A. Coupon = Coupon rate * Par value/2 = 1000*7%/2 = 35
Coupon/(1+YTM/2)^2t + Par Value/(1+YTM/2)^2t+ Par Value/(1+YTM/2)^2t

35/(1+7.7%/2)^2t + 1000/(1+ 7.7%/2)^2t = 966.86

B. Coupon rate = 5%
Maturity = 11years
Coupon = Coupon rate * Par value/2 = 5%* 1000/2 = 25

Present value of coupon  Coupon/(1+YTM/2)^2t =  25(1+5.7%/2)^2t = 404.48

C. Coupon = Coupon rate * Par value/2 = 1000*7%/2 = 35
Maturity = 15 years
Price of bond = Coupon/(1+YTM/2)^2t + Par Value/(1+YTM/2)^2t
946.22 =  35/(1+YTM/2)^2t + 1000/(1+YTM/2)^2t
YTM = 7.61%

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