Question

What is the maximum price that you would pay up for a series of A-rated

corporate bonds each with a face value of $1000, that promise to pay 33 more semi-annual coupons of $20.00 each at a yield to maturity of 3.53%? Please show how you arrive at your result. (This is a test to see if you understand the inverse relationship between interest rates and bond prices.)

Answer 1

semi annual coupoun payments = 33

semi annual coupoun amount = 20$

Annual YTM = 3.53%

Half yearly YTM = 3.53%/2=1.765%

Half Yearly YTM = semi annual coupoun amount * [email protected]% for 33 periods + purchase price *[email protected]% for 33th period

purchase price = 503