Bond Market Value/Yield PLEASE SHOW ALL WORK. hand written prefered. note the co

Question

Bond Market Value/Yield

PLEASE SHOW ALL WORK. hand written prefered. note the correct answer is given.

1. A coupon bond has a face value of $1000 and pays interest at the rate of 10% per year with interest payments made semi-annually. The bond matures 5-years from today. Assume that an interest payment was just made Note: The face value and interest rate are characteristics of the bond during its entire existence. In this problem the bond was issued some time in the past and may even have been sold/bought multiple times. But, the past is the past and only what happens from now until the bond matures in 5 years is relevant. a. Today, the market interest rate for bonds with similar risk is 6% per year compounded semi- annually. Determine today's market price for the bond using today's market interest rate to discount all future bond cash flows to maturity. b. But, the market interest rate can change let's say that today's rate is 12% per year compounded semi-annually. Determine today's market price for the bond using the new 12% rate to discount all future bond cash flows to maturity. Answers Market price S1171 at 6% per year compounded semi annually Market price S926 at 12% per year compounded semi annually

Explanation / Answer

Number of payments left = 5*2= 10

YTM = 6%/2= 3%

Market price = 50/(1+3%) + 50/(1+3%)^2 + 50/(1+3%)^3 + 50/(1+3%)^4

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