Semiannual Compounding on Bond, Coupon , Rate, Interest, Yield
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See attached file.
Use semiannual compounding on all bond problems unless otherwise indicated.
1. Determine the price of a $1,000 6% coupon rate bond that pays interest semiannually and has 5 years before maturity when similar securities have yields of 5%.
2. How much money will you be willing to pay for a 3 year $1,000 4% coupon bond that pays interest semiannually when similar securities have yields of 6%?
3. What is the current yield of the bond in question #2?
4. Would you pay 970 for a $1,000 deep discount bond that has 7 years remaining before maturity when similar securities had yields of 6%? Use semiannual compounding of interest rates. Use a coupon rate of 5%
5. What is the yield to maturity on a $1,000 5% coupon bond that pays interest semiannually, has 3 years before maturity and is currently trading at 96?
6. What is the coupon yield on the bond in question #5? What is the current yield on the bond in question #5?
7. If the yield to maturity on a bond decreases, will the price of the bond change? If yes, how will the price of a bond change.
8. List at least three factors that can cause interest rates to change.
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Solution Summary
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See attached file.
1. Determine the price of a $1,000 6% coupon rate bond that pays interest semiannually and has 5 years before maturity when similar securities have yields of 5%.
FV = 1000
Semiannual payment = 1000*6%/2 = 30
Number of periods = 5*2 = 10
Return rate = 5%/2 = 2.5%
Then by a financial calculate, compute PV = $1043.76
2. How much money will you be willing to pay for a 3 year $1,000 4% coupon bond that pays interest semiannually when similar securities have yields of 6%?
FV = 1000
Semiannual payment = 1000*4%/2 = 20
Number of periods = 3*2 = ...
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