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(a) $4000 bond maturing on 1 September 2030 bears 10 p a , payable

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(a) $4000 bond maturing on 1 September 2030 bears 10%
p.a., payable halfyearly. Find the purchase price on 1
September 2015 to provide a yield of j2=12% (compounded
half yearly).
(b) What would be the purchase price if yield was 8%
(compounded half yearly)?
(c) What would be the calculated price of the bond after 10
years of holding?
(d) Why do bond prices have an inverse relationship with
interest rates?
Solution
Ans:
a. Given Data: Face Value of the Bond =$4000
Maturity Preiod =15 Years * 2= 30
Coupon Rate=10 % P.a
Market yield =12 % (Compounded half yearly)
The current price of the Bond
Po = Coupon Interest *PVAF( 6%, 30yr) + Maturity Value *
PVF( 6%,30yr)
= $400 * 0.726 + $4000 * 0.1741
=$ 986.80
b) If Market Yield become 8 % Compunded Half yearly

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(a) $4000 bond maturing on 1 September 2030 bears 10% p.a., payable halfyearly. Find the purchase price on 1 September 2015 to provide a yield of j2=12% (compounded half yearly). (b) What would be the purchase price if yield was 8% (compounded half yearly)? (c) What would be the calculated price of the bond after 10 years of holding? (d) Why do bond prices have an inverse relationship with interest rates? Solution Ans: a. Given Data: Face Value of the Bond =$4000 Maturity Preiod =15 Years * 2= 3 0 Coupon Rate=10 % P.a Market yield =12 % (Compounded half yearly) The current price of the Bond ...
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