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Mindlap-Cengage lear x C Cengage Mindlo Secure https//ng.cengage.com/static/nb/ui/indexhtmi?nbld-8245728nbNodeld-3175102468e 5% MINDTAP FIN 331 AOL FINAL REVIEW Back to Assignment Attempts: Score: /8 6. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with two years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: o $1,162,843.81 $969,036.51 $823,681.03 O $610,493.00 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement When valuing a semiannual coupon bond, the time period variable(N) used to calculate the price of a bond reflects the number of periods remaining in the bond's life. O Type here to search

Explanation / Answer

Par Value 1000000 coupon rate 6% semi-annual 3% Yield to maturity 7.70% Semi-annual yield 3.85 No of years 2 No of period 2*2 4 Coupon 30000 Value of bond 30000*annuity factor for 4 period + 1000000*(1/1.0385^4) 30000*3.642764 + 1000000*0.859754 969036.9 Value of bond $969036.51 The number of period would be 4 Discounting rate @ 3.85% 0.962927299 0.927228983 0.8928541 0.859753587 3.64276397

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