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A bond with a coupon rate of 7.30% has a price that today equals $868.92. The...

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Finance

A bond with a coupon rate of 7.30% has a price that today equals$868.92. The $1000 face value bond pays coupon every 6 month, 30coupons remain, and a coupon was paid yesterday. Suppose you buythis bond at today's price and hold it so that you receive 20coupons. You sell the bond upon receiving the last coupon. Find theselling price if the bond's YTM remains constant. Please show allwork and formulas without use of financial calculator

Answer & Explanation Solved by verified expert
4.4 Ratings (625 Votes)

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =15x2
868.92 =? [(7.3*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^15x2
                   k=1
YTM% = 8.9
                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =5x2
Bond Price =? [(7.3*1000/200)/(1 + 8.89/200)^k]     +   1000/(1 + 8.89/200)^5x2
                   k=1
Bond Price = 936.92

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A bond with a coupon rate of 7.30% has a price that today equals$868.92. The $1000 face value bond pays coupon every 6 month, 30coupons remain, and a coupon was paid yesterday. Suppose you buythis bond at today's price and hold it so that you receive 20coupons. You sell the bond upon receiving the last coupon. Find theselling price if the bond's YTM remains constant. Please show allwork and formulas without use of financial calculator

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