Determine the price at which you will sell the bond

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Determine the price at which you will sell the bond in 5 years: Since at the time you sell the bond the market interest rate is equal to the coupon rate, you know that the bond will sell for $1,000.00 Determine the terminal (future) value of your coupons reinvested to earn 7 percent per year: N=5, I/YR=7, PMT=70, Solve for FV=$402.55 Thus, at the end of the 5 years, your coupons will be worth $402.55 and you will sell the bond for $1,000, giving you a total wealth position of $402.55 + 1,000.00 = $1,402.55. Since your original investment was only $871.65, your realized compounded yield is simply that rate which equates the two: N=5, PV = -871.65, FV = 1,402.55, Solve for I/YR = 9.98% 39. Assume that Bond A is a 5-year, $1,000 par value bond that pays an annual coupon and has the cash flows listed below. As you can calculate, the price of this bond will be $960.10 if the annual yield-to-maturity is 9.0 percent. Given this information, determine the duration of this bond. Year Bond A Cash Flow 1 $ 80.00 2 $ 80.00 3 $ 80.00 4 $ 80.00 5 $1,080.00
Sample Problems for Exam 1 Topic Review Page 9 of 9 Pages * Year Bond A Cash Flow Weighted Cash Flow PV of Weighted Cash Flow 1 $ 80.00 $ 80.00$ 73.392 $ 80.00 $ 160.00$ 134.673 $ 80.00 $ 240.00$ 185.324 $ 80.00 $ 320.00$ 226.705 $1,080.00 $5,400.00$3,509.63Total PV$4,129.71Duration = $4,129.71 / $961.10 = 4.30 Years

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