Question

Missing information on a bond. Your broker faxed to you the following information about two monthly coupon bonds that you are considering as a potential investment. Unfortunately, your fax machine is blurring some of the items, and all you can read from the fax on the two different bonds is the following: . Fill in the missing data from the information that the broker sent. What is the price of the IBM coupon bond? $ (Round to the nearest cent.) Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Features Face value (Par) IBM Coupon Bond $5,000 11.5% 8.5% 20 AOL Coupon Bond $5,000 ? 10.5% Coupon rate Yield to maturity. Years to maturity. Price 10 $3,301.65 Print Done

Answer 1

- + +i)". Face value Bond price = Coupon payment i (1+i)" Ines (1-1+0.0425) *24) $5,000 Bond price = $287.5x 0.0425 J' (1+0.0425):20 su 0.8107841756) $5,000 = $287.5x 0.0425 1.042540 = $287.5x19.07727472+$946.0791218 = $5, 484.716482+ $946.0791218 = $6,430.80 - +

- + Bond price = Coupon payment x( 1-(1+i)" | Face value Bond price coupon payment į * (1+i)" (1-(1+0.0525) 2:10). $5,000 $3,301.65= Coupon payment 0.0525 T' (1+0.0525) M10 $5,000 $3,301.65= Coupon payment x10.6406166854) 0.0525 1.052520 $3,301.65= Coupon payment x12.20222258+$1,796.916573 $3,301.65 – $1,796.916573= Coupon payment x12.20222258 + $946.0791218 $1,504.733427 = Coupon payment x12.20222258 123.31634= Coupon payment Coupon rate would be:

$5,000*(Coupon rate/2) = 123.31634 (Coupon rate/2) = 0.02466 Coupon rate = 0.0493 Coupon rate is 4.93%.