Question

Question 7 1 pts You purchase a bond with an clean price of $1,144. The bond has a coupon rate of 10 percent, and there are 2 months to the next semiannual coupon date. What is the dirty price of the bond? Enter the answer with 2 decimals (eg. 954.23). 1.17733 Question 8 1 pts Ackerman Co. has 11 percent coupon bonds on the market with 9 years left to maturity The bonds make semiannual payments. If the bond currently sells for $1,035.16, what is its YTM? Answer with 4 decimals (e.g. 0.0123) 0.1062

Answer 1

Answer to Question 7:

Face Value = $1,000

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%

Next coupon payment is due in 2 months; therefore interest is accrued for 4 months

Accrued Interest = $1,000 * 5.00% * 4/6
Accrued Interest = $33.33

Dirty Price = Clean Price + Accrued Interest
Dirty Price = $1,144.00 + $33.33
Dirty Price = $1,177.33

Answer to Question 8:

Face Value = $1,000
Current Price = $1,035.16

Annual Coupon Rate = 11.00%
Semiannual Coupon Rate = 5.50%
Semiannual Coupon = 5.50% * $1,000
Semiannual Coupon = $55

Time to Maturity = 9 years
Semiannual Period = 18

Let Semiannual YTM be i%

$1,035.16 = $55 * PVIFA(i%, 18) + $1,000 * PVIF(i%, 18)

Using financial calculator:
N = 18
PV = -1035.16
PMT = 55
FV = 1000

I = 0.05195

Seminnual YTM = 0.05195

Annual YTM = 2 * 0.05195
Annual YTM = 0.1039