Structured Finance Week 3 Bond Valuation with Annual Payments

Structured Finance Week 3 Bond Valuation with Annual Payments

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Structured Finance Homework 3 Bond Valuation with Annual Payments 1
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E xercise 5.1 5-1 Bond Valuation with Annual Payments Data: M = Par Value = $1,000 C = Maturity value. We can assume that it is the same as the par Value = $1,000 r = Coupon rate = 0.08 i = Effective interest rate per coupon = 0.09 n =Number of coupon payments remaining = 12 Calculations In order to calculate the current market price of these bonds, I will use the formula for the bond price on the date of a coupon payment. The bond price on the date of a coupon payment is the PV of all coupons + the PV of the maturity value *. means multiplication The present value of all coupons = M * r* [1-(1+i)- n ]/i The present value of the maturity date = C * [(1+i)- n ] The current market price of these bonds is M * r* [1-(1+i)- n ]/i + C * (1+i)- n ] = = 1,000 * 0.08 * [1-(1+0.09) -12 ]/0.09 + 1,000 * (1+0.09) -12 ] = = 80 *(1-0.355)/0.09 + 1,000 * 0.355 = $572.858+ $355.534 = $928.3927 Answer: The current market price of these bonds is $ 928.39 2
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E xercise 5.2 5-2 YTM for Annual Payments Data: M = Par Value = $1,000 Current Price (PV) = 850 r = Coupon Rate = 10% = 0.1 PMT = $100, because (0.1 * 1,000) N =Years to maturity = 12 Calculations In order to calculate the Yield to Maturity (YTM), I will use the following formula: 850 = The best way to calculate the r d is to use the financial calculator or the Excel Toolkit from Chapter5. Otherwise,
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Structured Finance Week 3 Bond Valuation with Annual Payments

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