hinsafdar

Given a required yield to maturity of 6%, what is the intrinsic value of a semi-annual pay coupon bond with an 8% coupon and 15 years remaining until maturity?

A) $1,095.

B) $1,196.

C) $1,202.

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This problem can be solved most easily using your financial calculator. Using semiannual payments, I = 6/2 = 3%; PMT = 80/2 = $40; N = 15 × 2 = 30; FV = $1,000; CPT → PV = $1,196.

hinsafdar

An investor buys a 10% semi annual coupon, 10-year bond for $1,000. The coupons can be reinvested at 12%. The investor estimates that the bond will be sold in 3 years $1,050.
Based on this information, what would be the average annual rate of return over the 3 years?

A) 13.5%.

B) 9.5%.

C) 11.5%.

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1. Find the FV of the coupons and interest on interest:

N = 3(2) = 6; I = 12/2 = 6; PMT = 50; CPT → FV = 348.77

2. Determine the value of the bond at the end of 3 years:

1,050.00 (given) + 348.77 (computed in step 1) = 1,398.77

3. Equate FV (1,398.77) with PV (1,000) over 3 years (N = 6); CPT → I = 5.75(2) = 11.5%

hinsafdar

What value would an investor place on a 20-year, $1,000 face value, 10% annual coupon bond, if the investor required a 9% rate of return?

A) $1,091.

B) $920.

C) $879.

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N = 20; I/Y = 9; PMT = 100 (0.10 × 1,000); FV = 1,000; CPT → PV = 1,091.

hinsafdar

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

A) $1,221.17.

B) $1,144.31.

C) $922.78.

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FV = 1,000; N = 10; PMT = 40; I = 5; CPT → PV = 922.78.