Homework Answers
a. Price of the bond based on semi annual analysis
Par Value - 1000$
Year to mature - 12 years
Yield to maturity - 10%
Interest rate 10% payable semi annual
price of the bond will be sum of the present value of the all the interest and principal . Since the interest rate is equal to YTM, bond will trade at value. Hence bond value will be 1000$ or can be calculated as below mentioned. Since interest payment frequency is half yearly then rate will be half i.e. 5% and period will be double i.e 24 for the calculation purpose.
| Period | Amont | Rate | PV = amount/(rate)^period |
| 1 | 50 | 1.05 | 47.6190 |
| 2 | 50 | 1.05 | 45.3515 |
| 3 | 50 | 1.05 | 43.1919 |
| 4 | 50 | 1.05 | 41.1351 |
| 5 | 50 | 1.05 | 39.1763 |
| 6 | 50 | 1.05 | 37.3108 |
| 7 | 50 | 1.05 | 35.5341 |
| 8 | 50 | 1.05 | 33.8420 |
| 9 | 50 | 1.05 | 32.2304 |
| 10 | 50 | 1.05 | 30.6957 |
| 11 | 50 | 1.05 | 29.2340 |
| 12 | 50 | 1.05 | 27.8419 |
| 13 | 50 | 1.05 | 26.5161 |
| 14 | 50 | 1.05 | 25.2534 |
| 15 | 50 | 1.05 | 24.0509 |
| 16 | 50 | 1.05 | 22.9056 |
| 17 | 50 | 1.05 | 21.8148 |
| 18 | 50 | 1.05 | 20.7760 |
| 19 | 50 | 1.05 | 19.7867 |
| 20 | 50 | 1.05 | 18.8445 |
| 21 | 50 | 1.05 | 17.9471 |
| 22 | 50 | 1.05 | 17.0925 |
| 23 | 50 | 1.05 | 16.2786 |
| 24 | 1050 | 1.05 | 325.5713 |
| Total Bond Value | 1000.0000 |
b. Value of the bond maturity for the remaining tenor of 6 years and yield to maturity is 7% will be Rs. $ 1144.95.
interest payment frequency is half yearly then rate will be half i.e. 3.5% and period will be double i.e 12 for the calculation purpose.
| Period | Amont | Rate | PV = amount/(rate)^period |
| 1 | 50 | 1.035 | 48.3092 |
| 2 | 50 | 1.035 | 46.6755 |
| 3 | 50 | 1.035 | 45.0971 |
| 4 | 50 | 1.035 | 43.5721 |
| 5 | 50 | 1.035 | 42.0987 |
| 6 | 50 | 1.035 | 40.6750 |
| 7 | 50 | 1.035 | 39.2995 |
| 8 | 50 | 1.035 | 37.9706 |
| 9 | 50 | 1.035 | 36.6865 |
| 10 | 50 | 1.035 | 35.4459 |
| 11 | 50 | 1.035 | 34.2473 |
| 12 | 1050 | 1.035 | 694.8725 |
| Total Bond Value | 1144.9500 |
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