Question2
Given below is information about three RM1000 par value bonds, each of which pays coupon semiannually. The required rate of return on each bond is 12%. Calculate the value of the bonds and determine whether the bond is selling at discount, premium or par value.
Bond Coupon Rate (%) Maturity (years)
1 10 5
2 12 10
3 14 15

Question

23-07-2022
Business

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Question2
Given below is information about three RM1000 par value bonds, each of which pays coupon semiannually. The required rate of return on each bond is 12%. Calculate the value of the bonds and determine whether the bond is selling at discount, premium or par value.
Bond Coupon Rate (%) Maturity (years)
1 10 5
2 12 10
3 14 15

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shivanijain4931 shivanijain4931 · Answer 1 · 2022-08-01T18:30:45+02:00

The value of bond 3 is RM1137.65

This bond 3 is selling at a premium since the coupon rate(14%) is higher than the required rate(12%) orSince the bond value(1137.65) is more than its par value(1000)

Bond 3:

Coupon rate = 14% = 0.14

Coupon payment = Coupon rate*Face value/ Number of compounding periods in a year

CPN = 0.14*1000/2 = 140/2 = 70Number of years till maturity = 15 years

Number of periods till maturity = N = 15*2 = 30

We know that the price of the bond is given by the following formula,

P = CPN*(1/y)*(1-(1/(1+y)^N)) + FV/(1+y)^N

Substituting the given values in the above equation,

we get

P = 70*(1/0.06)*(1-(1/(1+0.06)^30)) + 1000/(1+0.06)^30

P = 70*(1/0.06)*(1-(1/(1.06)^30)) + 1000/(1.06)^30

P = 70*(16.6667)*(1-(0.943396)^30) + 1000*(0.943396)^30

P = 70*(16.6667)*(1-0.17411) + 1000*(0.17411)

P = 70*(16.6667)*(0.82589) + 1000*(0.17411)

P = 963.54 + 174.11

P = 1137.65

Learn about the rate of return here:https://brainly.com/question/24301559#SPJ1