3) Consider a $1000 par value bond with a 5% coupon rate and semiannual coupons. The...

Question

Question

3) Consider a $1000 par value bond with a 5% coupon rate and semiannual coupons. The bond has a maturity of 4 years. Draw a t

Answer 1

Answer #1

Face Value of the bond = FV = $1000

Number of periods to maturity = n = 4*2 = 8 semiannual periods

Coupon Rate = 5%/2 * 1000 = $25

The Coupon Payments is made 8 times in 4 years and the Face Value is paid at maturity

Hence, Payments from Period 1 to 7 = $25 and payment in Period 8 = 1000+25 = $1025

0 1 2 3 4 5 6 7 8 Period $25 $25 $25 $25 $25 $25 $25 $1025

Answer 2

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