Please help with the following problem: Consider a bond (with par value = $1,000
ID: 2791461 • Letter: P
Question
Please help with the following problem:
Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year semiannually when the market interest rate is only 7% per half-year. The bond has 3 years until maturity.
Find the bond's price today and 6 months from now after the next coupon is paid. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
What is the total (6-month) rate of return on the bond? (Omit the "%" sign in your response.)
Thank you.
Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year semiannually when the market interest rate is only 7% per half-year. The bond has 3 years until maturity.
Explanation / Answer
N = 6
FV = 1000
PMT = 45
rate = 3.5%
use PV function in Excel
current price = 1053.29
now put n = 1 and use FV funciton
price after 6 months = 1045.15
rate of return = (1045.15 + 45)/1053.29 -1 = 3.50%