ANSWER = B)
|
8.5-year bond with 8.5% coupons and a yield of 10%
|
EXPLN:
Par value = $ 100
Semi -annual Coupon = Coupon rate/2
Semi-annual Yield rate = Yield rate / 2
a) 6.5-year bond with 3% coupons and a yield of 1.5%
|
Coupon |
Yield |
Semi-annual year |
|
1.5 |
0.75 |
13 |
|
|
|
|
|
|
|
Semi- annual Year |
PVF (0.75%) |
Cash flow |
PVCF |
|
|
|
|
|
|
1 |
0.99256 |
1.5 |
1.488834 |
|
2 |
0.98517 |
1.5 |
1.477751 |
|
3 |
0.97783 |
1.5 |
1.46675 |
|
4 |
0.97055 |
1.5 |
1.455831 |
|
5 |
0.96333 |
1.5 |
1.444994 |
|
6 |
0.95616 |
1.5 |
1.434237 |
|
7 |
0.94904 |
1.5 |
1.42356 |
|
8 |
0.94198 |
1.5 |
1.412963 |
|
9 |
0.93496 |
1.5 |
1.402445 |
|
10 |
0.92800 |
1.5 |
1.392005 |
|
11 |
0.92109 |
1.5 |
1.381642 |
|
12 |
0.91424 |
1.5 |
1.371357 |
|
13 |
0.90743 |
1.5 |
1.361149 |
|
13 |
0.90743 |
100 |
90.74324 |
|
|
|
|
|
|
Current bond value |
109.2568 |
b) 8.5-year bond with 8.5% coupons and a yield of 10%
|
Coupon |
Yield |
Semi-annual year |
|
4.25 |
5 |
17 |
|
|
|
|
|
|
|
Semi- annual Year |
PVF (5%) |
Cash flow |
PVCF |
|
|
|
|
|
|
1 |
0.952381 |
4.25 |
4.047619 |
|
2 |
0.907029 |
4.25 |
3.854875 |
|
3 |
0.863838 |
4.25 |
3.67131 |
|
4 |
0.822702 |
4.25 |
3.496486 |
|
5 |
0.783526 |
4.25 |
3.329986 |
|
6 |
0.746215 |
4.25 |
3.171415 |
|
7 |
0.710681 |
4.25 |
3.020396 |
|
8 |
0.676839 |
4.25 |
2.876567 |
|
9 |
0.644609 |
4.25 |
2.739588 |
|
10 |
0.613913 |
4.25 |
2.609131 |
|
11 |
0.584679 |
4.25 |
2.484887 |
|
12 |
0.556837 |
4.25 |
2.366559 |
|
13 |
0.530321 |
4.25 |
2.253866 |
|
14 |
0.505068 |
4.25 |
2.146539 |
|
15 |
0.481017 |
4.25 |
2.044323 |
|
16 |
0.458112 |
4.25 |
1.946974 |
|
17 |
0.436297 |
4.25 |
1.854261 |
|
17 |
0.436297 |
100 |
43.62967 |
|
|
|
|
|
|
Current bond value |
91.54445 |
c)
|
Coupon |
Yield |
Semi-annual year |
|
2.75 |
3 |
20 |
|
|
|
|
|
|
|
Semi- annual Year |
PVF (3%) |
Cash flow |
PVCF |
|
|
|
|
|
|
1 |
0.970874 |
2.75 |
2.669903 |
|
2 |
0.942596 |
2.75 |
2.592139 |
|
3 |
0.915142 |
2.75 |
2.51664 |
|
4 |
0.888487 |
2.75 |
2.443339 |
|
5 |
0.862609 |
2.75 |
2.372174 |
|
6 |
0.837484 |
2.75 |
2.303082 |
|
7 |
0.813092 |
2.75 |
2.236002 |
|
8 |
0.789409 |
2.75 |
2.170875 |
|
9 |
0.766417 |
2.75 |
2.107646 |
|
10 |
0.744094 |
2.75 |
2.046258 |
|
11 |
0.722421 |
2.75 |
1.986659 |
|
12 |
0.70138 |
2.75 |
1.928795 |
|
13 |
0.680951 |
2.75 |
1.872616 |
|
14 |
0.661118 |
2.75 |
1.818074 |
|
15 |
0.641862 |
2.75 |
1.76512 |
|
16 |
0.623167 |
2.75 |
1.713709 |
|
17 |
0.605016 |
2.75 |
1.663795 |
|
18 |
0.587395 |
2.75 |
1.615335 |
|
19 |
0.570286 |
2.75 |
1.568287 |
|
20 |
0.553676 |
2.75 |
1.522608 |
|
20 |
0.553676 |
100 |
55.36758 |
|
|
|
|
|
|
Current bond value |
96.28063 |
