Question

 ​(Bond valuation) A bond that matures in 19 years has a ​$1,000 par value. The annual coupon interest rate is 14 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually?

a.  The value of this bond if it paid interest annually would be ​$ nothing. ​(Round to the nearest​ cent.)

Answer 1

I - M (1+i)h Bond price C X C1tiJm Coupen payment whue i = annual yicld ate n=numbes of paymints face value of bond In case of interest paid anmually 140 14 x to00 14% of $10o0 to0 13 7 O.13 $1000 M- 600 0-13) 19 Bond price 140 x So 1 (It D.13) O.13 l000 1,13) 19 140 x -13)19 O.13 [1-0.09806 lo00 ahl 10.1974 O.13 140 x 0.901 94 98-064 0-13 g71.32t 98.064 $1069.384 $1069-38 41069.38 Are will be Value of bond So

In case of inteest paid nionualky sem 14 pf lo00 2 7 of 41000 C = # 70 lo00 (00 13 / 0.065 2. 38 x 61 $1000 M - 1000 (14 O.065 Bond price - 38 (It0-065 ) O.O65 000 7o x 1-065)30 O065 Loo0 0.09135 + 70 x L0.9467 O-065 0-90865 30X 91.35 0 060 51.35 978.55+ $1069.9 1069 90 So the value of bond toill be