Problem Set 4

# 6 b again using your financial calculator assume that

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• shi1hong
• 4

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maturity if the interest rate is 5.6%? b. Again using your financial calculator, assume that coupon payments are made semiannually. (This is the more typical case in the U.S.) In order to do this you must remember some conventions. In the U.S. if a bond with semiannual coupon payments is said to have a coupon rate of 6%, this usually means that 3% (\$30 in this case) will be paid every six months. Likewise, if the bond’s interest rate is stated as 5.6%, this usually means that the 6-month rate is 5.6/2=2.8%. That is, you can think of the stated rate as the APR, not the effective annual rate. 3

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c. Now replicate your answers from (a) and (b) using Excel. To do so, enter the data from (a) in a worksheet that looks like this: Bond Valuation Settlement Date 1/25/2010 Maturity Date 1/25/2013 Rate (Coupon) 6.00% Yield 5.60% Redemption 100 Frequency 1 Basis 1 Value Explanation of terms Settlement: Date when bond would be sold Maturity: Date when bond matures Rate: Annual coupon rate Yield: Yield to maturity Redemption: Amount received at maturity as a % of par Frequency: Number of payments per year Basis: Code for date convention (Just set this to 1).
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• Fall '10
• ToddMitton
• Balance Sheet, semiannual coupon payments, annual coupon rate, coupon payments, Roxbury Corporation

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