is S1,000 percent. The bonds mature in 6 years. What is the market price per bon

Question

is S1,000 percent. The bonds mature in 6 years. What is the market price per bond if the face value A. $989.70 B. $991.47 C. $996.48 D. $1,002.60 E.S1,013.48 Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent? A. $899.80 B. $899.85 C. $903.42 D. $967.24 E. $1,007.52 Use the following to answer 6 and 7 You have just inherited a large sum of moncy. You would like to make good use of your inheritance by putting it into an account that serves your retirement needs. You are planning your retirement and current expenditure. Your retirement plan requires you to deposit today (January 1, 2016) a lump sum in a bank account paying 10% compounded daily. You do not touch this sum until you retire 20 years from now, January 1, 2036, and you plan on living 20 additional years. During your retirement you would like to receive $300,000 per year to be received the first day of each year, with the first payment on January 1, 2036 and the last payment on January 1, 2056. Things are a little complicated because you want withdraw $600,000. Therefore you don not withdraw on January 1, 2052, and J to have some fling for about 3 years starting January 1, 2051 for which you Furtmore when you pass away you would like to leave about $1,000,000 for your loved ones, y 6. What is the amount of your inheritance? a. $737,193.27 b. $681,692.09 c. $185,2781.10 d. $1,852781.10 e. $2,813,014.61

Explanation / Answer

1) Coupon rate 8% payable semiannually Face value 1000 Price of bond = $952 Present Value = Future value/[(1+(r/m))^mt] r is the interest rate t is 11 m is the compounding period that is 2 r/2 0.04345 r 0.0869 mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 future payment 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 1040 present value 38.33 36.74 35.21 33.74 32.34 30.99 29.70 28.46 27.28 26.14 25.05 24.01 23.01 22.05 21.13 20.25 19.41 18.60 17.83 17.09 16.37 408.00 Price of bond/sum of present values 952 When we enter r as 8.69% we get the price of the bond to be $952 D. 8.69% 2) Coupon rate 7.6% payable annually Face value 1000 Price of bond = $1062.5 Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period t is 16 r 0.0694 t 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 future payment 76 76 76 76 76 76 76 76 76 76 76 76 76 76 76 1076 present value 71.07 66.46 62.14 58.11 54.34 50.81 47.52 44.43 41.55 38.85 36.33 33.97 31.77 29.71 27.78 367.76 Price of bond/sum of present values 1062.60 When we enter r as 6.94% we get the price of the bond to be around $1062.5 A. 6.94%

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