You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The b...
You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature on 15 February 2016 and have a coupon rate of 4.75%. If your purchase will settle on 27 April 2012, and the quoted yield for the bond is 5.32%, what is the cash price of the bonds to the nearest dollar?
Homework Answers
| Par/Face value | 100000 | ||||
| Annual Coupon rate | 0.0475 | ||||
| Annual coupon | 4750 | ||||
| Present Value = Future value/ ((1+r)^t) | |||||
| where r is the interest rate that is 5.32% and t is the time period in years. | |||||
| price of the bond = sum of present values of future cash flows | |||||
| r | 0.0532 | ||||
| mt | 1 | 2 | 3 | 4 | |
| future cash flow | 4750 | 4750 | 4750 | 104750 | |
| present value | 4510.065 | 4282.249 | 4065.941 | 85135.49 | |
| sum of present values | 97993.74 | ||||
| The cash price of the bonds to the nearest dollar is $97994. | |||||
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