A bond with a coupon rate of 6% makes semiannual coupon payments on January 15 a

Question

A bond with a coupon rate of 6% makes semiannual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100:03. What is the invoice price of the bond? The coupon period has 182 days. (Do not round intermediate calculations. Round your answer to 2 decimal places.) A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8.2% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bond's life. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,075. The first bond is issued at a deep discount with a coupon rate of 6% and a price of $610 to yield 11.3%. The second bond is issued at par value with a coupon rate of 8.75%. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.) If you expect rates to fall substantially in the next two years, which bond would you prefer to hold?

Explanation / Answer

Ans 6-

Bond Price= 100 2/32 percent of par = $1,000.625

However, 15 days have passed since the last semiannual coupon was paid,

so accrued interest equals: $35 x (15/182) = $2.885

The invoice price is the reported price plus accrued interest: $1003.51

Ans : 7 : Lets assume period (p) = year

P0: 1000 FV 20 N 8 I/Y CPT PV 214.5482074
P1: 1000 FV, 19 N, 8 I/Y CPT PV 231.712064
First year imputed interest = 231.712064 - 214.5482074 = 17.1638566
= $17.16

P2: 1000 FV, 18 N, 8 I/Y CPT PV 250.2490291
Second year imputed interest = 250.2490291 - 231.712064 = 18.5369651
= $18.54

P3: 1000 FV, 17 N, 8 I/Y CPT PV 270.2689514
Third year imputed interest = 270.2689514 - 250.2490291 = 20.0199223
= $20.02

Ans : 8

The yield to maturity is the discount rate that returns the bond's market price: YTM (Yield to maturity) = [(Face value/Bond price)1/Time period]-1.

The coupon payment is $1075 (that's 6% of $1075), so the equation to satisfy is

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