Homework Answers
Par value = 1000
Coupon rate = Effective interest /3 = r/3
YTM = r
Coupon = 1000*r/3
PV of Coupons = PV of Par Value
1000*r/3 * (1-(1+r)-n)/r = 1000/(1+r)n
1000*r/3 *((1+r)n-1)/(r *(1+r)n) =
1000/(1+r)n
(1+r)n-1 = 3
(1+r)n = 4
PV of par value = 1000/(1+r)n = 1000/4 = 250
Price of bond = 250*2 = 500
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