a.Information provided:
Par value= future value= $1,000
Time= 15 years*2= 30 semi-annual periods
Coupon rate= 11%/2= 5.5%
Coupon payment= 0.055*1,000= $55 per semi-annual period
Yield to maturity= 14%/2= 7% per semi-annual period
The price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 55
I/Y= 7
N= 30
Press the CPT key and PV to compute the present value.
The value obtained is 813.86.
Therefore, the price of the bond on semi-annual basis is $813.86.
b.Information provided:
Par value= future value= $1,000
Time= 10 years*2= 20 semi-annual periods
Coupon rate= 11%/2= 5.5%
Coupon payment= 0.055*1,000= $55 per semi-annual period
Yield to maturity= 10%/2= 5% per semi-annual period
The new price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 55
I/Y= 5
N= 20
Press the CPT key and PV to compute the present value.
The value obtained is 1,062.31.
Therefore, the new price of the bond is $1,062.31.
In case of any query, kindly comment on the solution.
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