Respuesta :
Answer:
1) price of Bond A=$953.18
2) price of Bond B=$484.05
3) price of Bond A= $ 926.66
4) price of Bond B= $ 353.54
Explanation:
According to the given data, we have two Bonds, Bond A and B with a face of value of $1,000 each of them, the coupon rate is of of 4%.
If The market interest rate for similar bonds is 9%, therefore the price of bond A and B would be calculated using the following formula:
PV(rate,nper,pmt,fv)
Hence, price of Bond A= PV(9%/2,1*2,40/2,1000)*-1
1) price of Bond A=$953.18
price of Bond B= PV(9%/2,30*2,40/2,1000)*-1
2) price of Bond B=$484.05
If that yields increase to 12%, therefore the price of bond A and B would be the following:
price of Bond A= PV(12%/2,1*2,40/2,1000)*-1
3) price of Bond A= $ 926.66
price of Bond B= PV(12%/2,30*2,40/2,1000)*-1
4) price of Bond B= $ 353.54
Answer:
1. $953.18
2. $484.05
3. $926.66
4. $353.54
Explanation:
Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Both of these cash flows discounted and added to calculate the value of the bond.
1.
Bond A
According to given data
Face value of the bond is $1,000
Coupon payment = C = $1,000 x 4% = $40 annually = $20 semiannually
Number of periods = n = 1 years x 2 = 2 period
Market Rate = 9% annually = 4.5% semiannually
Price of the bond is calculated by following formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Price of the Bond = 20 x [ ( 1 - ( 1 + 4.5% )^-2 ) / 4.5% ] + [ $1,000 / ( 1 + 4.5% )^2 ]
Price of the Bond = $953.18
2.
Bond B
According to given data
Face value of the bond is $1,000
Coupon payment = C = $1,000 x 4% = $40 annually = $20 semiannually
Number of periods = n = 30 years x 2 = 60 period
Market Rate = 9% annually = 4.5% semiannually
Price of the bond is calculated by following formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Price of the Bond = 20 x [ ( 1 - ( 1 + 4.5% )^-60 ) / 4.5% ] + [ $1,000 / ( 1 + 4.5% )^60 ]
Price of the Bond = $484.05
Now Change the Market Interest rate to 12%
3.
Bond A
Price of the Bond = 20 x [ ( 1 - ( 1 + 6% )^-2 ) / 6% ] + [ $1,000 / ( 1 + 6% )^2 ]
Price of the Bond = $926.66
4.
Bond B
Price of the Bond = 20 x [ ( 1 - ( 1 + 6% )^-60 ) / 6% ] + [ $1,000 / ( 1 + 6% )^60 ]
Price of the Bond = $353.54
