Homework Answers
Answer a.
Face Value = $1,000
Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $1,000
Semiannual Coupon = $45
Time to Maturity = 15 years
Semiannual Period = 30
Annual YTM = 6.00%
Semiannual YTM = 3.00%
Price of Bond = $45 * PVIFA(3.00%, 30) + $1,000 * PVIF(3.00%,
30)
Price of Bond = $45 * (1 - (1/1.03)^30) / 0.03 + $1,000 *
(1/1.03)^30
Price of Bond = $45 * 19.600441 + $1,000 * 0.411987
Price of Bond = $1,294.01
Answer b.
No, since an investor will not purchase this bond because current price of the bond is higher than the current call price.
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