Question

Assume that a bond will make payments every six months as shown on the following timeline​ (using six-month​ periods): The timeline starts at Period 0 and ends at Period 60. The timeline shows a cash flow of $ 19.37 each from Period 1 to Period 59. In Period 60, the cash flow is $ 19.37 plus $ 1,000. Period0125960 Cash Flows$19.37$19.37$19.37$19.37+$1,000

a. What is the maturity of the bond​ (in years)?

b. What is the coupon rate​ (as a​ percentage)?

c. What is the face​ value?

Answer 1

Given about a bond,

The timeline starts at Period 0 and ends at Period 60. They are paying coupon 6- monthly.

From period 1 to Period 59, cash flows are $19.37. These cash flows before maturity are coupon payments.

At year 60, cash flow is $19.37 + 1000

So, $1000 is because of the face value and $19.37 is due to coupon payment.

a). Maturity of the bond in years = Total periods/2 = 60/2 = 30 years

b). Coupon rate = 2*semiannual coupon payment/1000 = 2*19.37/1000 = 3.874%

c). Face value of the bond = Payment of maturity other than coupon payment.

So, Face value of the bond = $1000