Question

In 2013, Bank of America issued bonds with a 3.30% coupon, to be paid semi-annually. The par value of bonds is $1000. The first coupon payment was made on 07/1/2013. The bonds will mature on 1/11/2023.

a. Your task is to value the bond today. How many coupon payments should you include in your calculation?

b. Use the table below to provide a timeline of cash flows that you will use to arrive at a valuation today. Make sure you place the terminal payment in the last column.

Date
Time (1,2 etc.)
Amount

Answer 1

a. coupons are paid semi-annually. bond maturity is 10 years. so, there are 10*2 = 20 semi-annual coupons. first coupon is already paid. so remaining 19 coupon payments of ($1,000*3.30%/2) = $16.5 each should be included in your calculation.

b. Bond will be retired on 1/11/2023 and par value of the bond $1,000 will be returned.

Date	Time	Amount
12/1/2013	2	$16.50
7/1/2014	1	$16.50
12/1/2014	2	$16.50
7/1/2015	1	$16.50
12/1/2015	2	$16.50
7/1/2016	1	$16.50
12/1/2016	2	$16.50
7/1/2017	1	$16.50
12/1/2017	2	$16.50
7/1/2018	1	$16.50
12/1/2018	2	$16.50
7/1/2019	1	$16.50
12/1/2019	2	$16.50
7/1/2020	1	$16.50
12/1/2020	2	$16.50
7/1/2021	1	$16.50
12/1/2021	2	$16.50
7/1/2022	1	$16.50
12/1/2022	2	$16.50
1/11/2023	1	$1,000.00