Homework SourseOil Well Supply offers 76 percent coupon bonds with semiannu
Oil Well Supply offers 7.6 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent. The bonds mature in 6 years. What is the market price per bond if the face value is $1,000? A. $996.48 B. $1,013.48 C. $989.70 D. $991.47
Solution
Option - A is correct.
| Particulars | Cash flow | Discount factor | Discounted cash flow | |
| Interest payments-Annuity (3.84%,12 periods) | 38.0 | 9.4728 | 359.97 | |
| Principle payments -Present value (3.84%,12 periods) | 1,000 | 0.6362 | 636.24 | |
| A | Bond price | 996.21 | ||
| Face value | 1,000 | |||
| Premium/(Discount) | -3.79 | |||
| Interest amount: | ||||
| Face value | 1,000 | |||
| Coupon/stated Rate of interest | 7.60% | |||
| Frequency of payment(once in) | 6 months | |||
| B | Interest amount | 1000*0.076*6/12= | 38 | |
| Present value calculation: | ||||
| yield to maturity/Effective rate | 7.68% | |||
| Effective interest per period(i) | 0.0768*6/12= | 3.840% | ||
| Number of periods: | ||||
| Ref | Particulars | Amount | ||
| a | Number of interest payments in a year | 2 | ||
| b | Years to maturiy | 6.0 | ||
| c=a*b | Number of periods | 12 |
