Question

(1) (Bond Valuation) a bond that matures in 9 years has a $1000 par value. the annual coupon interest rate is 14% and the markets required yield to maturity on a comparable risk-bond is 16%. what would be the value of this bond if it paid interest annually? what would be the vale of this bond if it paid interest semi-annually?

(2) (yield to maturity) the market price is $850 for a 12-year bond ($1000 par value) that pays 9% annual interest, but makes interest payments on a semi0annual basis (4.5% semi-annually). What is the bonds yield to maturity?

Answer 1

1 & 2

AU8 AK AO AS x =AU/2 AL AM AN AN Bond Prices Annual Payment Rate 16% Period 9 Years Payment 140 Annual Coupon Future Value 1000 Price of Bond ($907.87) AP AQ AR YTM Semi-Annual Payment Period 24 Period (12*2) Payment 45 Semi Annual Coupon Price of Bond -850 Future Value 1000 Semi-Annual YTM 6% Annual YTM 11.32%| Semi-Annual Payment Rate 8% semiannual Interest Rate Period 18 Perod (9*2) Payment 70 Semi Annual Coupon Future Value 1000 Price of Bond ($906.28) 15 16

AK AO AP AR AL AM AN Bond Prices Annual Payment Rate 0.16 Period 9 Years Payment 140 Annual Coupon Future Value 1000 Price of Bond =PV(AM3, AM4,AM5,AM6) AQ YTM Semi-Annual Payment Period Payment 45 Price of Bond -850 Future Value 1000 Semi-Annual YTM ERATE(AQ3,AQ4,AQ5, AQ6) Annual YTM =AQ7*2 Period (12*2) Semi Annual Coupon Semi-Annual Payment Rate 0.08 Semiannual Interest Rate Period 18 Perod (9*2) Payment 70 Semi Annual Coupon Future Value 1000 Price of Bond =PV(AM10, AM11, AM12, AM13)