a)
Coupon = (0.08 * 100) / 2 = 4
Rate = 10% / 2 = 5%
Number of periods = 3 * 2 = 6
Price = Coupon * [1 - 1 / (1 + r)n]/ r + FV / (1 + r)n
Price = 4 * [1 - 1 / (1 + 0.05)6]/ 0.05 + 100 / (1 + 0.05)6
Price = 4 * [1 - 0.746215] / 0.05 + 74.62154
Price = 4 * 5.0757 + 74.62154
Price = $94.92
Bond is trading at a discount
b)
Coupon = (0.08 * 100) / 2 = 4
Rate = 6% / 2 = 3%
Number of periods = 3 * 2 = 6
Price = Coupon * [1 - 1 / (1 + r)n]/ r + FV / (1 + r)n
Price = 4 * [1 - 1 / (1 + 0.03)6]/ 0.03 + 100 / (1 + 0.03)6
Price = 4 * [1 - 0.837484] / 0.03 + 83.748426
Price = 4 * 5.417191 + 83.748426
Price = $105.42
4) Suppose a three-year, $100 par value bond with a 8% coupon rate and semiannual coupons...
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