Question

Sam buys a 10-year 1000 par value 10% bond with semiannual coupons. The price assumes a nominal yield of 12%, compounded semi-annually. What is the purchase price? 2. A 15-year 1000 par bond with 7% semiannual coupons (This also means that each coupon is 3.5% and comes every 6mo.) is priced to yield 6% convertible semiannually. Find the price. Write a simple diagram before you solve. When BA-II calculator function is used, you must show your inputs.

Answer 1

To calculate the price of a bond, you need to determine the present value of its future cash flows. The price of the first bond is $934.58, and the price of the second bond is $1171.31.

Step-by-step explanation:

To calculate the price of a bond, you need to determine the present value of its future cash flows. In this case, we have two different bonds with semiannual coupons. Let's start with the first bond:

Price = (C / r) * (1 - (1 + r)^(-n)) + (M / (1 + r)^n)

Where:

• C = coupon payment
• r = yield rate per period
• n = number of periods
• M = par value of the bond

Plugging in the values, we get:

Price = (50 / 0.06) * (1 - (1 + 0.06)^(-20)) + (1000 / (1 + 0.06)^20) = $934.58

For the second bond, we have a 15-year maturity, a par value of $1000, a coupon rate of 3.5% (which means it pays a 7% coupon semiannually), and a yield rate of 6% convertible semiannually. Using the same formula, we can calculate the price:

Price = (35 / 0.03) * (1 - (1 + 0.03)^(-30)) + (1000 / (1 + 0.03)^30) = $1171.31