A $ 500 bond matures on March 1, 2018. Interest is 6% payable semi- annually. Find...

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Answer 1

Answer #1

(Question 1)

Semi-annual coupon = $500 x (6%/2) = $15

Semi-annual yield = 7.5%/2 = 3.75%

Number of semi-annual compounding periods till maturity = 11

Purchase price ($) = PV of future coupon payments + PV of face value

= 15 x P/A(3.75%, 11) + 500 x P/(3.75%, 11)

= 15 x 8.8798** + 500 x 0.667**

= 133.20 + 333.50

= 466.70

**P/A(3.75%, 11) = [1 - (1.0375)^-11] / 0.0375 = (1 - 0.667) / 0.0375 = 0.333 / 0.0375 = 8.8798

**P/F(3.75%, 11) = (1.0375)^-11 = 0.667

NOTE: As HOMEWORKLIB's Policy, only 1 question can be answered at a time.

Answer 2

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