Question

5. An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the yield-to-maturity on the bond is 11%, find the price of the bond per 100 of par value. 6. A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, find the price of this bond per 100 of par value. 7. A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per year and assuming annual compounding, find the price of the bond per 100 of par value. 8. (True or False) Suppose a bond's price is expected to increase by 5% if its market discount rate decreases by 100 bps (1%). If the bond's market discount rate increases by 100 bps (1%), the bond price is most likely to change by 5%. (Provide explanations if the answer is False!) The following information relates to Questions 9 and 10 Bond Price Coupon Rate Time-to-Maturity 5% 2 years 101.886 в 100.000 6% 2 years 97.327 5% З уears 9. Which bond offers the lowest yield-to-maturity? 10. Which bond will most likely experience the smallest percent change in price if the market discount rates for all three bonds increase by 100 basis points (bps)? (100 bps translate into 1%)

Answer 1

5. Price of Bond can be calculated by discounting the interest and the amount received on maturity.

Information given in the question is

Coupon rate = 9%

Face Value of Bond = 100

Yield to maturity or Kd = 11% p.a.

Maturity period = 3 years

Interest is to be received semi annually, thus the amount of interest received per half yearly = 100*9%*6/12 = 4.5

Number of periods for which interest is received = 3 years *2 = 6 period

Kd of 6 months = 11%/2 = 5.5%

B0 = interest*PVAF(5.5%, 6 year) + Maturity amount*PVF(5.5%, 6 year)

Formula for calculating PVAF is

PVAF - 1-(1+i)-n

Formula for calculating PVF is

PVF = 1/(1+i)^n

B0 = 4.5*PVAF(5.5%, 6 year) + 100*PVF(5.5%, 6 year)

B0 = 4.5*4.995 + 100*.72525

= 95.00

Dear Student as per the policies we are only allowed to answer the First Question in case when there is multiple questions. So you can ask remaining questions as separate one.