Question

10) to determine the present value of a bond that pays semiannual interest, which of the following adjustments should not be made to compute the price of the bond? a. The annualized coupon should be split in half. b. The annual discount rate should be divided by 2. c. The number of annual periods should be doubled. d. The par value should be split in half. e. All of the above adjustments have to be made. 19) Assume a bond with a $1,000 par value and an 11 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity. The duration of this bond is a. 1.90 years. b. 1.50 years. c. 1.92 years. d. none of the above

Answer 1

18)

To determine the present value of a bond that pays semiannual interest, all of the following adjustments to be made

i.e, Annual discount rate should e divided by 2, Number of annual periods must be doubled and the par value should be split in half in order to compute semiannual interest amount.

So, Option 'E' is correct

19)

par value $ 1000 Annual coupon amount : 1000 * 11% HO years to Maturity 2 years YTM & 10% Computation of duration of bond way year cashflows Desen Present weight value (w) value factor (10 ) * 110 . :0.90909 99.999 0.09829 0.09829 CH-10) - 1-8034 0.82645 917.36 0.901406 0.10) # 1017.36 1.90 Duration : 1.90 years option A is correct