Question

Using the following returns, calculate the average returns for Abundant and Slim.

Hope bonds have a coupon rate of 7% and mature in 7 years. Assuming semi-annual coupons with face value of $100, what is the value of this bond? Similar bonds yield 6%.

	a.	The value of this bond is $106.58.
	b.	The value of this bond is $105.65.
	c.	The value of this bond is $39.54.
	d.	The value of this bond is $94.54.

	a.	The average return for Share Abundant is 5.4% and 2.8% for Share Slim.
	b.	The average return for Share Abundant is 5.83% and 4.83% for Share Slim.
	c.	The average return for Share Abundant is 4.83% and 5.83% for Share Slim.
	d.	The average return for Share Abundant is 5.5% and 4.5% for Share Slim.

Answer 1

Par/Face value	100
Annual Coupon rate	0.07
Annual coupon	7
semi-annual coupon	3.5
Present Value = Future value/[(1+(r/m))^mt]
r is the interest rate that is 6%.
m is the compounding period that is 2
mt is the time period.
price of the bond = sum of present values of future cash flows
r/2	0.03
mt	1	2	3	4	5	6	7	8	9	10	11	12	13	14
future cash flow	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	103.5
present value	3.398058	3.299086	3.202996	3.109705	3.019131	2.931195	2.84582	2.762932	2.682459	2.604329	2.528474	2.45483	2.38333	68.42569
sum of present values	105.65
b) The value of this bond is $105.65.