1) The coupon will be $70 and the bond price will be as follows: We will use the PV formula in excel where we have the 4 out of the 5 required values which are rate = 6%, NPER = 10 years, FV = 1000 and PMT = Coupon = 70 so the bond price is;
Particulars | Amount |
Interest Rate | 6.00% |
Coupon Payment | -70 |
No of Years | 10 |
Future Value/Maturity Value | -1,000.00 |
Present Value | 1,073.601 |
We get the value of the bond as $1073.601.
2) We will use the same PV formula to get the present value of the bond with different yield to maturities
BOND A:
Particulars | Amount |
Interest Rate | 6.00% |
Coupon Payment | 0 |
No of Years | 15 |
Future Value/Maturity Value | $-100.00 |
Present Value | $41.727 |
Particulars | Amount |
Interest Rate | 5.00% |
Coupon Payment | 0 |
No of Years | 15 |
Future Value/Maturity Value | $-100.00 |
Present Value | $48.102 |
change in price of bond if the yield changes from 6% to 5% an increase of $6.375
BOND B:
Particulars | Amount |
Interest Rate | 6.00% |
Coupon Payment | 0 |
No of Years | 10 |
Future Value/Maturity Value | $-100.00 |
Present Value | $ 55.839 |
Particulars | Amount |
Interest Rate | 5.00% |
Coupon Payment | 0 |
No of Years | 10 |
Future Value/Maturity Value | $ -100.00 |
Present Value | $ 61.391 |
change in price of bond if the yield changes from 6% to 5% an increase of $5.552
BOND C:
Particulars | Amount |
Interest Rate | 6.00% |
Coupon Payment | -4 |
No of Years | 15 |
Future Value/Maturity Value | $ -100.00 |
Present Value | $ 80.576 |
Particulars | Amount |
Interest Rate | 5.00% |
Coupon Payment | -4 |
No of Years | 15 |
Future Value/Maturity Value | $-100.00 |
Present Value | $ 89.620 |
change in price of bond if the yield changes from 6% to 5% an increase of $9.044
BOND D:
Particulars | Amount |
Interest Rate | 6.00% |
Coupon Payment | -6 |
No of Years | 10 |
Future Value/Maturity Value | ₹ -100.00 |
Present Value | ₹ 100.000 |
Particulars | Amount |
Interest Rate | 5.00% |
Coupon Payment | -6 |
No of Years | 10 |
Future Value/Maturity Value | ₹ -100.00 |
Present Value | ₹ 107.722 |
change in price of bond if the yield changes from 6% to 5% an increase of $7.722
Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face...
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