The current price efthe band can be determined using the ﬁellewing Earn-1111a:
_PMT+FMT+ +PMT+ FF”
a‘me' r;1+z'}u2 n+1)" n+2)"
Given:
Pa = Present ‘i'ﬁiLl e of bond
PIN-['I' = Payment amount
i = Current interest rate
11 = Mime-er of years
The rene

{c} The current yield measures the return withrespcct to the current market price cfthc
hand. It looks atthc currentprice of the 't:-:u1dinsteac;l ofthe Face value ofthe bond.
Annualinterest paym ent
Marketprice of hon-:1
Current tricldfor Ajﬂx 100
$1030

Find out the total post of the stool: by adding the strike pride of the option and the ounent pride of the
option. The daired rault is 525.
As the market pl'iL'E of the stool: is hig her than the total post of the stout. there would be gain on bail
option

Find out the total oost of the stool: by adding the strike prioe of the option and the current pride of the
option. The dElIE-El rﬁult is 525.
As the maltet pride of the stool: is laser than the total oost of the stock. there would be loss on call option.

I_l -—
bl
The ful luwing details are tnuwn:
Mallet priue u‘f a stud = 5'13
Strike urine uf the uptiun = $20
Selling uriueuf uall uutiun = 55
Calculate the intrinsiutu'alue uf the stud by using the furrnula given beluw:
Intrneie Fall“: efeteek = Market pri

a:
The following details are known:
I'u'lartet prioeofastoelt=525
Strike prioe of the option = 52D
Belling prioe of [all option.= 55
Calmlate the intri n-siou'alue ofthe stool: by using the formula given below:
Intrneie value efeteek = Market priee efetee

Generally. the yin-Jets on taxable govemment bonds exoeed the yields on non-taxable municipal bonds.
Over the time. this yarianoe has diminished as a lower inoome tax rate l-EdIJEE the appeal of municipal
bonds.
Calmlate the comparable yield on the taxabl

Now. find out the yield on a non-taxable bond so that after-yields are equal.
The details are as follm's:
Il'ltEl'Et rate on taxable bond = 5.9%
Tax rate = 2.3%
The formula i5 mentioned below:
Tea yield helm 1am: = Interel rate en taxable bend - tax rate