1) What is the price of a bond that matures in 13 years and 7 months, has an int
ID: 2789009 • Letter: 1
Question
1) What is the price of a bond that matures in 13 years and 7 months, has an interest rate of 3 1/5%, when current market yields are also about 3 1/5%?
2) A broker has called you and offers you 4 bonds with a coupon rate of -0%-, they mature in 3 years and 12 months, and he wants 68 3/9 for them. You think interest rates in the economy are going to fall. Would you buy these bonds? Explain.
3) Calculate the price of 6 bonds that have a nominal rate of 3 3/8% mature in 14 years, when current market yields are approximately 5%.
4) Calculate the Yield to Maturity of 10 bonds that have a stated rate of 6 1/3%, mature in 5 1/2 years, and are currently priced at 102.244.
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Explanation / Answer
Yearly
Monthly
no of months
1-
interest rate
3.2
0.266667
163
value of bond
interest*PVAF at .2666% for 163 period
2.6666*132.061 +1000*.64792
1000.1
Interest
2.666667
Face value
1000
PVAF
1-(1+r)^-n / r
1-(1.002666)^-163 /.002666
132.061
PVF at .2666%
1/(1+r)^n
1/(1.002666)^163
0.647925
value of bond
1000
Yearly
No of years
3-
interest rate
3.375
14
value of bond
interest*PVAF at .2666% for 163 period
33.75*7.4335 +1000*.6283
876.6753
Interest
33.75
Face value
1000
PVAF
1-(1+r)^-n / r
1-(1.03375)^-14 /.05
7.4335
PVF at .2666%
1/(1+r)^n
1/(1.05)^14
0.505068
value of bond
876.6753
value of 6 bonds
876.6753*6
5260.052
4-
Approximate YTM
interest+(face value-market value)/ years to maturitt / (Face value+market value)/2
6.333+(100-102.244)/5.5 / (100+102.244)/2
5.925/101.122
5.86%
Interest
6.333
Maturity
5.5
face value
100
Market value
102.244
Approximate YTM
5.86%
2-
value of zero coupon bonds
(face value)/(1+R)^n
so as the market rate of interest will change value of zero coupon bonds will change as market interest rate is not given in the question so we can not calculate the current value of bond but as it is mentioned that the future market interest rates will fall so value of bond will increase as interest market interest rate will fall
Yearly
Monthly
no of months
1-
interest rate
3.2
0.266667
163
value of bond
interest*PVAF at .2666% for 163 period
2.6666*132.061 +1000*.64792
1000.1
Interest
2.666667
Face value
1000
PVAF
1-(1+r)^-n / r
1-(1.002666)^-163 /.002666
132.061
PVF at .2666%
1/(1+r)^n
1/(1.002666)^163
0.647925
value of bond
1000
Yearly
No of years
3-
interest rate
3.375
14
value of bond
interest*PVAF at .2666% for 163 period
33.75*7.4335 +1000*.6283
876.6753
Interest
33.75
Face value
1000
PVAF
1-(1+r)^-n / r
1-(1.03375)^-14 /.05
7.4335
PVF at .2666%
1/(1+r)^n
1/(1.05)^14
0.505068
value of bond
876.6753
value of 6 bonds
876.6753*6
5260.052
4-
Approximate YTM
interest+(face value-market value)/ years to maturitt / (Face value+market value)/2
6.333+(100-102.244)/5.5 / (100+102.244)/2
5.925/101.122
5.86%
Interest
6.333
Maturity
5.5
face value
100
Market value
102.244
Approximate YTM
5.86%
2-
value of zero coupon bonds
(face value)/(1+R)^n
so as the market rate of interest will change value of zero coupon bonds will change as market interest rate is not given in the question so we can not calculate the current value of bond but as it is mentioned that the future market interest rates will fall so value of bond will increase as interest market interest rate will fall
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