Question

You own a bond that has a 6% annual coupon rate and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8% (yield to maturity)?

You purchase a bond with a coupon rate of 6.25% and a par value of $1,000. There are 53 days to the next semiannual coupon payment date and the total number of days in the period is 182. What is the accrued interest amount?

Question 8 6 pts You own a bond that has a 6% annual coupon rate and matures 5 years from now. You purchased this 10 year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8% (yield to maturity)? The next semi-annual interest payment will be $60. O You will realize a capital gain on the bond if you sell it today. The current yield-to-maturity is greater than 7%. The current coupon rate is equal to 5.8%. Question 9 6 pts You purchase a bond with a coupon rate of 6.25% and a par value of $1,000. There are 53 days to the next semiannual coupon payment date and the total number of days in the period is 182. What is the accrued interest amount? $31.25 $9.10 O $22.15 O $62.50

Answer 1

Solution :

Question 8 )

It is given that the coupon is 6% and YTM is 5.8%.

We know that the price of bond is inversely related with the interest rate. Here the YTM is less than the coupon rate, hence current price of the bond must be more than the Face value.

If the bond is sold today then it will attract long term capital gain as the current price will be higher than the Face value.

If bond is purchased at par value and you hold till maturity then there will be no long term capital gain as maturity price = face value

Hence option B is correct.

Note: We don't need to calculate the current price of the bond as we can say that the current price of bond is higher than face value by seeing YTM.

Question 9)

Coupon rate = 6.25% annual = 6.25% /2 = 3.125% semiannual

Face value = 1000

Coupon payment = face value * coupon rate = 1000 * 3.125% = 31.25

Accrued interest = Coupon * No of days since last payment / No of days between two coupon payment

Accrued interest = 31.25 * (182 - 53)/182 = 31.25 * 129 / 182 = 31.25 * 0.708791 = $ 22.15

Correct option is C )