(1 point) Two bonds, each with a face value of $16000, are redeemable at par in...

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Question

(1 point) Two bonds, each with a face value of $16000, are redeemable at par in t-years and priced to yield 44 = 10%. Bond 1

Answer 1

Answer #1

Answer $ $10,534.95

Working:

Bond 1:

Face value = $16,000

Quarterly coupon = 16000 * 12% / 4 = $480

Sale price = $17884.50

Quarterly yield = 10% / 4 = 2.5%

To get time to maturity we will use NPER function of excel:

= NPER (rate, pmt, pv, fv, type) = NPER(2.5%, 480, -17884.50, 16000, 0) = 36

Bond 2:

Face value = $16,000

Quarterly coupon = 16000 * 4.2% / 4 = $168

Time to maturity (in quarters) = as calculated above = 36

Quarterly yield = 10% / 4 = 2.5%

Sale price = PV (rate, nper, pmt, fv, type) = PV(2.5%, 36, -168, -16000, 0) = $10,534.95

Value of P = Sale price of Bond 2 = $10,534.95

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Answer 2

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