A seniannual corporate bond has a ace value of 1000 a yield

A seni-annual corporate bond has a ace value of $1,000, a yield to maturity of 6.9 percent, and a coupon rate of 6.5 percent. The bond matures 8 years from today. This bond\'s value should be: ? -ps(3.4596.1 632.5, 1000)-975.72 Which one of the following bonds has the most interest rate risk? a. 5-year; 6 percent coupon b. 5-year, zero coupon c. 10-year, zero coupon d. 10-year, 6 percent coupon 2. 3. Jenny earned 6.7 percent on her investments last year. What was her real rate of return if the inflation rate was 1.6 percent? 4. Black and White, Inc. offers a 7.5 percent bond with a yield to maturity of 6.65 percent. The bond pays interest annually and matures in 17 years. What is the market price of one of these bonds if the face value i $1,000?

Solution

1) Present value of bond(bond value) = face value / (1+market interest)^{number of payments} + interest (1 - (1+market interest))^{-number of payment} / market interest

= 1000 / (1+ 6.9%/2)^8*2 + (1000*6.5%/2) (1 - (1+ 6.9%/2))^-8*2 / 6.9%/2

= 1000 / (1+0.0345)¹⁶ + 32.5 (1 - (1+0.0345)^-16 / 0.0345

= 1000 / (1.0345)¹⁶ + 32.5 [1 - 1/(1.0345)¹⁶] / 0.0345

= 1000 / 1.720632 + 32.5 (1 - 1/ 1.720632) / 0.0345

= 581.18 + 394.54

= 975.72