1. What is the value of a semi-annual interest bond with 8 years to maturity, 5%
ID: 2760152 • Letter: 1
Question
1. What is the value of a semi-annual interest bond with 8 years to maturity, 5% annual coupon, $1,000 par value, and currently priced to yield 4.3%
2. Suppose that you are interested in buying a bond that pays interest semi-annually. It has an annual coupon of 6% with interest payable on June 15th and December 15th. The bond accrued interest is determined using a 30/360 day count street convention. If the bond is currently priced at $1,050, what is the invoice price for the bond using a settlement date of April 13, 2016? (Show your work)
3. You have $250,000 invested in bond A which has a modified duration of 3 and $175,000 invested in bond B which has a modified duration of 12. If interest rates rise by 50 basis points, your portfolio would gain/lose approximately how much money? (State gain or loss and the dollar amount of change). SHOW ALL WORK
Explanation / Answer
1) Par value 1000 Interest 50 (1000*5%) PVAF(4.3%, 8 yrs) 6.6501 PV of interest 332.51 PVIF(4.3%, 8 yrs) 0.704 PV of face value 704 Value of bond 1,036.51
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