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Bond Valuation Question and Answers

Essay by   •  August 2, 2015  •  Study Guide  •  383 Words (2 Pages)  •  3,052 Views

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Bond Valuation Practice Problems

  1. The $1,000 face value ABC bond has a coupon rate of 6%, with interest paid semi-annually, and matures in 5 years. If the bond is priced to yield 8%, what is the bond's value today?
  • FV = $1,000
  • CF = $60/2 = $30
  • N = 5 x 2 = 10
  • i = 8%/2 = 4%
  • PV = $918.89
  1. The $1,000 face value EFG bond has a coupon of 10% (paid semi-annually), matures in 4 years, and has current price of $1,140. What is the EFG bond's yield to maturity?
  • FV = $1,000
  • CF = $100/2 = $50
  • N = 4 x 2 = 8
  • PV = $1,140
  • i = 3%
  • yield-to-maturity = 3% x 2 = 6%
  1. The HIJ bond has a current price of $800, a maturity value of $1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond's annual coupon rate?
  • PV = $800
  • FV = $1,000
  • N = 5 x 2 = 10
  • i = 8% / 2 = 4%
  • CF = $15.34
  • Coupon = $30.68 per year or 3.068%
  1. The KLM bond has a 8% coupon rate (with interest paid semi-annually), a maturity value of $1,000, and matures in 5 years. If the bond is priced to yield 6%, what is the bond's current price?
  • CF = $40
  • FV = $1,000
  • N = 10
  • i = 6%/2 = 3%
  • PV = $1,085
  1. The NOP bond has an 8% coupon rate (semi-annual interest), a maturity value of $1,000, matures in 5 years, and a current price of $1,200. What is the NOP's yield-to-maturity?
  • CF = $40
  • FV = $1,000
  • N = 5 x 2 = 10
  • PV = $1,200
  • i = 1.797%
  • yield-to-maturity = 1.797% x 2 = 3.594%

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