Question

Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon Government of Canada bond with two years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 9.90%. Using this information and ignoring the other costs involved, calculate the value of the bond: $1,116,928.30 $586,387.36 $791,157.54 $930,773.58 Based on your calculations and understanding of semiannual coupon bonds, complete the following statements: Assuming that interest rates remain constant, the bond's price is expected to The bond described is selling at a When valuing a semiannual coupon bond, the time period N in the present value formula used to periods calculate the price of the bond is treated in terms of

Answer 1

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BOND- Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste в IU* +.0 .00 Conditional Format Cell Sort & Find & $ % .00 0 Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox C785 A B C D E G Н 783 784 785 786 VALUATION OF T NOTE 1000000 787 PAR VALUE 788 COUPON 6% COUPON ($) 30000 SEMI ANNUAL] 789 790 YEARS TO MATURITY 2 791 NO OF PERIODS 792 RATE 9.90% 4.95% 793 SEMI ANNUAL RATE 794 930773.58 PV(C793,C791,-C789,-C787)] 795 ANS PRESENT VALUE OF BOND 796 797 ANS BOND PRICES EXPECTED TO INCREASE 798 ANS BOND DESCRIBED IS SELLING AT A DISCOUNT 799 ANS 6 MONTH PERIODS 800 801 S5 S6 BIDDING, UNDERWRITING S4 YIELD SPOT Sheet2 WARRANT refund AFN BANKING NOTE S1 S3 CLEAN PRICE S10 EUAC AW LIFE LP, IP, MRP, INFLATION 130% Rea erences WA 05:51 ENG 29-10-2019

BOND- Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste в IU* $ %, 000 Conditional Format Cell Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Alignment Clipboard Font Number Styles Cells Editing fox Hо152 HI НJ НК HL НМ HN НО НР Но HR HS 149 150 FIRST OPTION : A BOND WITH A 6% YIELD IS AN INVESTMENT BOND 151 ANS 1 152 IF BOND RATINGS ARE UPGRADED 153 ANS 2 154 THE YIELD ON THE BOND IS LIKELY TO GO DOWN (= DECREASE) AND BOND'S PRICE WILL GO UP(INCREASE 155 156 157 158 10 YEAR T BOND 16.30% 12.50% 159 10 YEAR CORP BOND not given LRP DIFFERENCE 160 161 162 DRP 10 YEAR CORP BOND - 10 YEAR T-BOND - DIFFERENCE IN LRP SO THE DRP = DEFAULT RISK PREMIUM = 16.30% - 12.50% -0.00% 163 3.8% ANS 3 164 s10 BANKING BIDDING,UNDERWRITING LP, IP, MRP, INFLATION NOTE S1S3 CLEAN PRICE EUAC AW LIFE S4S5S6 | ш YIELD SPOT Sheet2 AFN WARRANT refund (-) erences 140% W 05:54 ENG 29-10-2019