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ACTSC231Tutorial5 - face value The coupon rate is 7.5 and...

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ACTSC 231 Tutorial 5 Nov 17, 2009 1. A 6% $1000 par-value bond maturing in eight years and having semi-annual coupons has the same price as a 5.5% $1000 par bond, also with semi-annual coupons. Both bonds are bought to yield 5% nominal interest convertible semi-annually. In how many years (to the nearest half year) should the new bond mature? 2. A $2000 bond with semi-annual coupons is redeemable for $2100 in 15 years. It has a coupon rate of 6.5%. The bond is purchased to yield 8% per annum compounded semi- annually. Find the price of the bond, the amount for accumulation of discount (aka discount write-up) in the tenth coupon, and the amount of interest in the tenth coupon. 3. A 10-year semi-annual coupon bond has face value $1000 and is redeemable for 110% of
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Unformatted text preview: face value. The coupon rate is 7.5% and the bond is purchased to yield 8% convertible semi-annually. a. Before calculating the price, will this bond be sold at a discount or premium? b. Calculate the price c. Suppose the investor wants to sell the bond after 5 years and 4 months. At this time, the market interest rate (that buyers would desire) has dropped to 5% convertible semiannually. i. Calculate the dirty price of the bond ii. Calculate the clean price of the bond by each of the three methods in class: 1. Assume next coupon is shared in proportion 2. Assume straight line between book values 3. Assume an equivalent continuously paying coupon bond...
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