Question

A $7,500 face value, 20-year bond has a nominal annual coupon rate of 7.4%, paid semiannually. The yield to maturity is 5.3% convertible semiannually. In the 4th coupon payment, the amount for amortization of premium is $28.31. Find the redemption amount of the bond.

Answer 1

$134,000

Step-by-step explanation:

Annual yield (%) = Face value - Purchase value/Face value X 360 X 100%/Maturiy(in days)

Let x be purchase value

2 X 5.3% = $7,500 - x/$7,500 X 360 X 100%/365

100($7,500 - x) = 10.6 X $7,500

$750,000 - 100x = $79,500

100x = $(750,000 - 79,500) = $670,500

x = $6,750

The value of bond for 20-year: 20 X $6,750 = $134,000