Question 5 Mark purchases a bond. A 1000 par value two-year bond with semiannual

Question

Question 5 Mark purchases a bond. A 1000 par value two-year bond with semiannual coupons at a rate of 8% convertible semiannually, is bought to yield 6% convertible semiannually. The initial price of the bond was 1037.17. Then, m months after purchase, before a coupon is paid, Mark decides to sell the bond. Using the semi-theoretical method, the full price of the bond at this time is 1063.04. Using the semi-theoretical method, what would be the book value of the bond at this time( months after purchase)? (a) 1229.7 (b) 1179.7 (c) 1129.7 (d) 1079.7 (e) 1029.7

Explanation / Answer

Firstly we have to calculate that after how many months the bond sold.

Current price × (1+r)m/6. =1063.04

1037.17 × (1.03)n/6 = 1063.04

(1.03)n/6 = 1.0249

By putting values of n we got

N= 5 months

Calculation of book value

Book value = face value of bond + unamortized value of premium

1000 + (1037.17-1000)×19/24

1000+29.7

=1029.7

Answer is e 1029.7

Clarification - bond current price is 1037.17 and fv is 1000 , that means bond is selling at premium of 37.17 which should be amortize in books within maturity period.bond is sold after give months that means 5/24 times amortised .

Un amortised period is 19/24

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.