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Bonds Questions and Answerss

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22 views15 pages

Bonds Questions and Answerss

Good for you

Uploaded by

Bright Baah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ECN 3321 Bond price calculation practice questions

Calculate the price of a bond with these characteristics. In each case,


assume the coupon rate is 0.06, coupon payments are made every six months
(twice per year), and the par value (maturity payment) of the bond is 1,000.

1. years to maturity = 5.0; market interest rate = 0.03.

2. years to maturity = 5.0; market interest rate = 0.05.

3. years to maturity = 5.0; market interest rate = 0.06.

4. years to maturity = 5.0; market interest rate = 0.08.

5. years to maturity = 5.0; market interest rate = 0.09.

6. years to maturity = 8.0; market interest rate = 0.03.

7. years to maturity = 8.0; market interest rate = 0.05.

8. years to maturity = 8.0; market interest rate = 0.06.

9. years to maturity = 8.0; market interest rate = 0.08.

10. years to maturity = 8.0; market interest rate = 0.09.

11. years to maturity = 12.0; market interest rate = 0.03.

12. years to maturity = 12.0; market interest rate = 0.05.

13. years to maturity = 12.0; market interest rate = 0.06.

14. years to maturity = 12.0; market interest rate = 0.08.

15. years to maturity = 12.0; market interest rate = 0.09.

16. years to maturity = 15.0; market interest rate = 0.03.

17. years to maturity = 15.0; market interest rate = 0.05.

18. years to maturity = 15.0; market interest rate = 0.06.

19. years to maturity = 15.0; market interest rate = 0.08.

20. years to maturity = 15.0; market interest rate = 0.09.

1
21. years to maturity = 20.0; market interest rate = 0.03.

22. years to maturity = 20.0; market interest rate = 0.05.

23. years to maturity = 20.0; market interest rate = 0.06.

24. years to maturity = 20.0; market interest rate = 0.08.

25. years to maturity = 20.0; market interest rate = 0.09.

2
Answers
0.03
1. n = 2 × 5.0 = 10; r = 2
= 0.01500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.01500)10 − 1 1, 000
P = 10
+
0.01500 (1 + 0.01500) (1 + 0.01500)10

µ ¶
1.16054 − 1 1, 000
P = (2, 000) +
1.16054 1.16054

P = 276.6655 + 861.6672

P = 1, 138.33

0.05
2. n = 2 × 5.0 = 10; r = 2
= 0.02500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.02500)10 − 1 1, 000
P = 10
+
0.02500 (1 + 0.02500) (1 + 0.02500)10

µ ¶
1.28008 − 1 1, 000
P = (1, 200) +
1.28008 1.28008

P = 262.5619 + 781.1984

P = 1, 043.76

3
0.06
3. n = 2 × 5.0 = 10; r = 2
= 0.03000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.03000)10 − 1 1, 000
P = 10
+
0.03000 (1 + 0.03000) (1 + 0.03000)10

µ ¶
1.34392 − 1 1, 000
P = (1, 000) +
1.34392 1.34392

P = 255.9061 + 744.0939

P = 1, 000.00

0.08
4. n = 2 × 5.0 = 10; r = 2
= 0.04000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04000)10 − 1 1, 000
P = +
0.04000 (1 + 0.04000)10 (1 + 0.04000)10

µ ¶
1.48024 − 1 1, 000
P = (750) +
1.48024 1.48024

P = 243.3269 + 675.5642

P = 918.89

4
0.09
5. n = 2 × 5.0 = 10; r = 2
= 0.04500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04500)10 − 1 1, 000
P = 10
+
0.04500 (1 + 0.04500) (1 + 0.04500)10

µ ¶
1.55297 − 1 1, 000
P = (666.6667) +
1.55297 1.55297

P = 237.3815 + 643.9277

P = 881.31

0.03
6. n = 2 × 8.0 = 16; r = 2
= 0.01500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.01500)16 − 1 1, 000
P = +
0.01500 (1 + 0.01500)16 (1 + 0.01500)16

µ ¶
1.26899 − 1 1, 000
P = (2, 000) +
1.26899 1.26899

P = 423.9379 + 788.0310

P = 1, 211.97

5
0.05
7. n = 2 × 8.0 = 16; r = 2
= 0.02500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.02500)16 − 1 1, 000
P = 16
+
0.02500 (1 + 0.02500) (1 + 0.02500)16

µ ¶
1.48451 − 1 1, 000
P = (1, 200) +
1.48451 1.48451

P = 391.6501 + 673.6249

P = 1, 065.28

0.06
8. n = 2 × 8.0 = 16; r = 2
= 0.03000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.03000)16 − 1 1, 000
P = +
0.03000 (1 + 0.03000)16 (1 + 0.03000)16

µ ¶
1.60471 − 1 1, 000
P = (1, 000) +
1.60471 1.60471

P = 376.8331 + 623.1669

P = 1, 000.00

6
0.08
9. n = 2 × 8.0 = 16; r = 2
= 0.04000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04000)16 − 1 1, 000
P = 16
+
0.04000 (1 + 0.04000) (1 + 0.04000)16

µ ¶
1.87298 − 1 1, 000
P = (750) +
1.87298 1.87298

P = 349.5689 + 533.9082

P = 883.48

0.09
10. n = 2 × 8.0 = 16; r = 2
= 0.04500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04500)16 − 1 1, 000
P = +
0.04500 (1 + 0.04500)16 (1 + 0.04500)16

µ ¶
2.02237 − 1 1, 000
P = (666.6667) +
2.02237 2.02237

P = 337.0205 + 494.4693

P = 831.49

7
0.03
11. n = 2 × 12.0 = 24; r = 2
= 0.01500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.01500)24 − 1 1, 000
P = 24
+
0.01500 (1 + 0.01500) (1 + 0.01500)24

µ ¶
1.42950 − 1 1, 000
P = (2, 000) +
1.42950 1.42950

P = 600.9122 + 699.5439

P = 1, 300.46

0.05
12. n = 2 × 12.0 = 24; r = 2
= 0.02500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.02500)24 − 1 1, 000
P = +
0.02500 (1 + 0.02500)24 (1 + 0.02500)24

µ ¶
1.80873 − 1 1, 000
P = (1, 200) +
1.80873 1.80873

P = 536.5496 + 552.8754

P = 1, 089.42

8
0.06
13. n = 2 × 12.0 = 24; r = 2
= 0.03000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.03000)24 − 1 1, 000
P = 24
+
0.03000 (1 + 0.03000) (1 + 0.03000)24

µ ¶
2.03279 − 1 1, 000
P = (1, 000) +
2.03279 2.03279

P = 508.0663 + 491.9337

P = 1, 000.00

0.08
14. n = 2 × 12.0 = 24; r = 2
= 0.04000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04000)24 − 1 1, 000
P = +
0.04000 (1 + 0.04000)24 (1 + 0.04000)24

µ ¶
2.56330 − 1 1, 000
P = (750) +
2.56330 2.56330

P = 457.4089 + 390.1215

P = 847.53

9
0.09
15. n = 2 × 12.0 = 24; r = 2
= 0.04500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04500)24 − 1 1, 000
P = 24
+
0.04500 (1 + 0.04500) (1 + 0.04500)24

µ ¶
2.87601 − 1 1, 000
P = (666.6667) +
2.87601 2.87601

P = 434.8644 + 347.7035

P = 782.57

0.03
16. n = 2 × 15.0 = 30; r = 2
= 0.01500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.01500)30 − 1 1, 000
P = +
0.01500 (1 + 0.01500)30 (1 + 0.01500)30

µ ¶
1.56308 − 1 1, 000
P = (2, 000) +
1.56308 1.56308

P = 720.4751 + 639.7624

P = 1, 360.24

10
0.05
17. n = 2 × 15.0 = 30; r = 2
= 0.02500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.02500)30 − 1 1, 000
P = 30
+
0.02500 (1 + 0.02500) (1 + 0.02500)30

µ ¶
2.09757 − 1 1, 000
P = (1, 200) +
2.09757 2.09757

P = 627.9088 + 476.7427

P = 1, 104.65

0.06
18. n = 2 × 15.0 = 30; r = 2
= 0.03000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.03000)30 − 1 1, 000
P = +
0.03000 (1 + 0.03000)30 (1 + 0.03000)30

µ ¶
2.42726 − 1 1, 000
P = (1, 000) +
2.42726 2.42726

P = 588.0132 + 411.9868

P = 1, 000.00

11
0.08
19. n = 2 × 15.0 = 30; r = 2
= 0.04000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04000)30 − 1 1, 000
P = 30
+
0.04000 (1 + 0.04000) (1 + 0.04000)30

µ ¶
3.24340 − 1 1, 000
P = (750) +
3.24340 3.24340

P = 518.7610 + 308.3187

P = 827.08

0.09
20. n = 2 × 15.0 = 30; r = 2
= 0.04500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04500)30 − 1 1, 000
P = +
0.04500 (1 + 0.04500)30 (1 + 0.04500)30

µ ¶
3.74532 − 1 1, 000
P = (666.6667) +
3.74532 3.74532

P = 488.6667 + 267.0000

P = 755.67

12
0.03
21. n = 2 × 20.0 = 40; r = 2
= 0.01500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.01500)40 − 1 1, 000
P = 40
+
0.01500 (1 + 0.01500) (1 + 0.01500)40

µ ¶
1.81402 − 1 1, 000
P = (2, 000) +
1.81402 1.81402

P = 897.4754 + 551.2623

P = 1, 448.74

0.05
22. n = 2 × 20.0 = 40; r = 2
= 0.02500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.02500)40 − 1 1, 000
P = +
0.02500 (1 + 0.02500)40 (1 + 0.02500)40

µ ¶
2.68506 − 1 1, 000
P = (1, 200) +
2.68506 2.68506

P = 753.0833 + 372.4306

P = 1, 125.51

13
0.06
23. n = 2 × 20.0 = 40; r = 2
= 0.03000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.03000)40 − 1 1, 000
P = 40
+
0.03000 (1 + 0.03000) (1 + 0.03000)40

µ ¶
3.26204 − 1 1, 000
P = (1, 000) +
3.26204 3.26204

P = 693.4432 + 306.5568

P = 1, 000.00

0.08
24. n = 2 × 20.0 = 40; r = 2
= 0.04000;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04000)40 − 1 1, 000
P = +
0.04000 (1 + 0.04000)40 (1 + 0.04000)40

µ ¶
4.80102 − 1 1, 000
P = (750) +
4.80102 4.80102

P = 593.7832 + 208.2890

P = 802.07

14
0.09
25. n = 2 × 20.0 = 40; r = 2
= 0.04500;
C = 0.06×1,000
2
= 30
P = price of bond:
µ ¶Ã !
30 (1 + 0.04500)40 − 1 1, 000
P = 40
+
0.04500 (1 + 0.04500) (1 + 0.04500)40

µ ¶
5.81636 − 1 1, 000
P = (666.6667) +
5.81636 5.81636

P = 552.0475 + 171.9287

P = 723.98

15

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