Question

omer x Minois State University : FIL 2 x Mind Tap - Cengage Learning X + ngage.com/static/nb/ui/evo/index.html?deploymentid=59051228932336980530062380&ISBN 9780357114 CENGAGE | MINDTAP Ch 07: Assignment - Bonds and Their Valuation < Back to Aliment Attempts: Keep the Highest: 7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by ha Using the values of cash flows and number of periods, the valtion i s adjusted accordingly. Assume that a $1,000,000 per valut, e l con VT) of the bond is 11.00 . Using this wormation and US Treasury note with four years to maturty has a coupon rate of . The yield to maturity on the other costs involved, a t the value of the Treasury not $745,617.36 5614624.76 5470,368.94 $895,940.83 Based on your calculations and understanding of semiannual coupon bonds, complete the fol ) used to calculate the price of a bond rente When valuing a semiannual coupon bond, the time period variab periods remaining in the band's

Answer 1

Price of a bond is mathematically represented as: 1 1-- (1 + i)" PEC. - +- м. (1 + i)" where P is price of bond, with periodic coupon C, n periods to maturity, periodic YTM i and face value M.

M = $1,000,000 n = 4 * 2 = 8 semi-annual periods, C = 3% * $100,000/2 = $15,000, i = 11%/2 = 5.5% (semi-annual)

$P = 15000 * \frac{1-\frac{1}{(1 &plus; 0.055)^{8}}}{0.055} &plus; \frac{1000000}{(1 &plus; 0.055)^{8}}$

P = $95,018.49 + $651,598.87

P = $746,617.36 ---> Answer

b) When valuing a semi-annual coupon bond, the time period variable (N) used to calculate the price of bond reflects the number of SEMI-ANNUAL periods remaining in bond's life.