Question

A $1.000 bond has a coupon of percent and matures after twelve years, and that the bond pays interest any What would be the b

Interest Factors for the Present Value of One Dollar Time Period 「 一 year) DS 171 461 10年 19 14:15% % 2020 OBO 19719621952-94

appendix b

Interest Factors for the Present Value of an Annuity of One Dollar 2 7% 8% 9% 10% 12% 14% 16% 15% 20% 24% 28% 32% 365 0.990 0

appendix d

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Answer #1
Current Price of a bond is the sum of the Present Value of all its future cash flows ,till maturity
ie.Price=PV=PV of Coupons+PV of Face value to be recd. At maturity
ie.PV of coupon interest annuities+PV of a single future amt.(Face value)to be recd. At maturity (both discounted at the Yield or YTM or market interest rate)
so, we use the formula,
Price/PV=(Coupon amt.*(1-(1+YTM)^-n)/YTM)+(FV/(1+YTM)^n)
here, n= the no.of coupon periods still to maturity
With that , we calculate for the given questions as follows:
As the Table is given, we multiply by the P/A factor & the P/F factor
a.Bond's price if comparable debt yields 7%--matures in 12 years
Price/PV=(1000*6%*7.943)+(1000*0.444)=
920.58
P/A,i=7%;n=12 =7.943 (Appendix d)
P/F,i=7%;n=12 =0.444 (Appendix b)
b.Bond's price if comparable debt yields 7%--matures in 6 years
Price/PV=(1000*6%*4.766)+(1000*0.666)=
951.96
P/A,i=7%;n=12 =4.766 (Appendix d)
P/F,i=7%;n=12 =0.666 (Appendix b)
c.The price of the bond in a. is LESS than the price of the bond in b.as the principal payment of the bond in a. is LATER than the principal payment of the bond in b.(in time)
d.Current Yield & YTM: The bond matures after 12 years
CY: Annual $ Coupon amt./Current market price (1000*6%)/920.58= 6.52%
YTM: Given 7%
The bond matures after 6 years
CY: Annual $ Coupon amt./Current market price (1000*6%)/951.96= 6.30%
YTM: Given 7%
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