Homework 3 Solution

Homework 3 Solution - Chapter 6, Problem 6 To nd the price...

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Chapter 6, Problem 6 To fnd the price oF this bond, we need to realize that the maturity oF the bond is 14 years. The bond was issued one year ago, with 15 years to maturity, so there are 14 years leFt on the bond. Also, the coupons are semiannual, so we need to use the semiannual interest rate and the number oF semiannual periods. 14 * 2 = 28 N coupon rate oF 6.1% oF $1,000 = $61 per year or halF that For a semi-annual payment. 61/2 = 30.5 PMT yield to maturity (YTM) oF 5.30% means 5.3/2 = 2.65 as semi-annual interest rate I/Y iF no par value For bond is given always assume $1,000, which is the Future value: 1000 ±V now compute For CPT PV 1078.37 Sanity check: YTM is lower than coupon rate premium bond $1,078.37 > $1,000 Chapter 6, Problem 7 Here, we are fnding the YTM oF a semiannual coupon bond. Periods ( N ): 2 * (15 - 2) = 26 Payment ( PMT ): 8.4% oF $1,000 divided by 2 = 42 Present Value ( PV ): 108% oF $1,000 = 1,080, this needs to be entered with a NEGATIVE sign ±uture Value ( ±V ): $1,000 CPT I/Y gives 3.71% For semi-annual rate, 2 * 3.71% = 7.43% Sanity check: Price is higher than par value premium bond, which means YTM 7.43% must be less than coupon rate oF 8.4% Chapter 6, Problem 8 Here, we need to fnd the coupon rate oF the bond. Periods ( N ): 2*10.5 = 21 Interest Rate ( I/Y ): 9.4% / 2 = 4.70% Present Value ( PV ): $945 ±uture Value ( ±V ): $1,000 CPT PMT gives $42.82 payment For halF a year or $85.65 For Full year
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Homework 3 Solution - Chapter 6, Problem 6 To nd the price...

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