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Question

Biti Bank purchase a $1,500 bond that pays 12% pa compounded half-yearly and is redeemable in exactly 11 years.

The price paid will yield the bank 6% pa compounded half-yearly if held to maturity. Biti Bank hold this bond for 5 years before coming to a decision that the bond should be sold. They decide to sell to ZNZ Bank at 6.1% pa compounded half-yearly.

a)Calculate the price (PB) that Biti Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.


b)Calculate the price (PZ) that ZNZ Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.


c)Calculate the nominal annual yield compounded half-yearly that Biti Bank realised. You may give your answer as a percentage per annum to the nearest percent or use linear interpolation or a financial calculator to give a more accurate result.

Top Answer

Ans a) 2,217.16 Ans b) 1,939.15... View the full answer

Biti Bank and ZNZ Bank.jpg

Ans a
Price of the Bond for Biti bank
C*(1-(1/(1+r)^n)+ FV *1/1+r^n
where
C= Semi Annual Coupon Payment
$1500*12%/2
90
n= 11*2
22
YTM Semi Annual
6%/2
3.0%
FV= Face Value or Par Value
1500
Purchase...

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