Question

Hamilton ink bonds have a 6% coupon rate but interest is paid semi annually and the bonds mature in eight years the par value is $1000 if your rate of return is 4% what is the value of the bond what is the value if interest is paid annually?

What if the interest is paid annually what would the value of the bond bond be?

Answer 1

Price of bond		= PV of coupon payments+PV of redemption price
Coupon payments		=	1000*(.06/2)
		=	$30.00
	rate	=	0.04/2 or 0.02 per half year
	Time	=	8 yrs * 2=16 haif years
Price of bond		=	30*PVAF(2%,16 half year)+PVF(2%,16years)*1000
		=	(30*13.5777)+(0.728445*1000)
		=	407.33+728.445
		=	$1135.77
IF interest is paid annually
	Coupon payments		=	1000*.06
			=	$60.00
		rate	=	0.04
		time	=	8 yrs * 2=16 haif years
	Price of bond		=	60*PVAF(4%,8years)+1000*PVF(4%,8years)
			=	(60*6.7327)+(1000*0.73069)
			=	403.9647+730.6902
			=	$1134.655
Note
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