Question

1. Calculate the price of 8.0% semi-annual bond. The bond was originally issued with a 10-year term to maturity and exactly five years remain until maturity. The rates on new 10-year semi-annual bonds of comparable risk are 7.0% and on new five-year semi-annual bonds of comparable risk are 6.0%.
2. Suppose you had an 8%, $10,000 semi-annual bond with three years remaining to maturity. The yield on new three-year bonds of comparable quality is 6%. Calculate what your bond is worth in the secondary market.
3. Calculate the price of a $10,000 T-bill at a trading for 97.8
4. Which senior security has the primary entitlement to a company’s assets and earnings?

1. Secondary Line of credit
2. Subordinated debenture
3. Preferred Securities
4. First mortgage bond

5. A $10,000 par-value semi-annual bond has a coupon rate of 5% Maturity is Jan 15, 2022. How much would the bond holder receive on the 15^th of July each year? The yield is 5.14%

1. $257
2. $0
3. $500
4. $250

6. What are the characteristics of accrued interest?

1. Calculated using the bond’s coupon rate
2. Included in the bond’s market price
3. Paid by the buyer to the bond’s seller
4. Paid by the seller to the bond’s buyer

1. 3 and 4
2. 1 and 3
3. 2 and 4
4. 1 and 2

Answer 1

You have asked so many unrelated questions in a single post. I have addressed the first question. Please post the balance questions separately, one by one.

Calculate the price of 8.0% semi-annual bond. The bond was originally issued with a 10-year term to maturity and exactly five years remain until maturity. The rates on new 10-year semi-annual bonds of comparable risk are 7.0% and on new five-year semi-annual bonds of comparable risk are 6.0%.

Rate = YTM of new five-year semi-annual bonds of comparable risk / 2 = 6.0% / 2 = 3.0%

Nper = number of half years till maturity = 2 x (Original maturity years - years expired) = 2 x (10 - 5) = 10

PMT = Semi annual coupon = 8%/2 x Par value = 4% x 1,000 (par value is not given in the question, but it's customary to assume the par value to be $ 1,000 in this kind of question) = 40

FV = Par value = 1,000

Hence, price of the bond = - PV (Rate, Nper, PMT, FV) = -PV (3%, 10, 40, 1000) = $ 1,085.30