1. A corporate bond has 20 years to maturity, a face value of $1,000, a coupon r
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Question
1. A corporate bond has 20 years to maturity, a face value of $1,000, a coupon rate of 5.2% and pays interest twice a year. The annual market interest rate for similar bonds is 3%.
a) What is the period discount rate? Make sure the discount rate matches the timing of cash flows.
b) What is the fair price of the bond?
C) 2 years later, the market interest rate for similar bonds has gone up to 4%. What is the new price of the bond?
2. Apple has a bond outstanding with an annual coupon rate of 4.4% and a face value of $1,000. The bond matures in 14 years. It currently trades at $940.61.
a) What is the current yield?
b) If the same bond paid interest semi-annually, what would be its current yield?
3. A corporate bond pays interest twice a year and has 17 years to maturity, a face value of $1,000 and a coupon rate of 6.1%. The bond's current price is $1,394.1. It is callable after 11 years (years to call) at a call price of $1,113.
a) What is the bond's (annualized) yield to maturity? Enter your answer as a decimal number or with the percentage sign.
Explanation / Answer
Since this bond pays coupon twice in a year, period discount rate would be half of the yearly market interest rate.
a) Annual market interest rate = 3%
Period discount rate = 3%/2
=1.50%
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