BOND PRICING. Find PBOND for each of the following $1000 par value bonds. Use a calculator to find the correct answers. Round to the nearest penny ($0.01). Example: 12% coupon (APR, compounded annually), matures in one year, r=12% 5. 12%APR 12% = 0.12 First, convert the coupon rate from APR to periodic rate: lyear уear Second, find the соиpon: Coupon - (СоuponRate)(Face) - (0.12)(1000) — 120 - С %3D (lyr)lyrs |= 1yr = T yr Third, find the relevant number of periods: Fourth, use bond pricing formula with the appropriate discount rate (here, 12%): T 1000 + 120 1000 C F 120 1120 PBOND = 1000 %3D (1 + r)' )' (1+r)" | (1.12)' (1.12)' 1.12 1.12 1.12 \t=1 12% coupon (APR, compounded quarterly), matures in one year, r=4% per quarter [Here, the discount rate is ready to use, while the coupon rate is still in its marketing-gimmick form.] b. а. 12% coupon (APR, compounded semi-annually), matures in two years, r=6% per 6 months

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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5. BOND PRICING. Find PBOND for each of the following $1000 par value bonds. Use a calculator to
find the correct answers. Round to the nearest penny ($0.01).
Example: 12% coupon (APR, compounded annually), matures in one year, r=12%
12%APR
12%
0.12
First, convert the coupon rate from APR to periodic rate:
lyear
уear
Second, find the соuроn: Coupon - (СouponRate)(Face) — (0.12)(1000) — 120 - С
%3D
(1yrs
= lyr =T
yr
(lyr)
%3D
Third, find the relevant number of periods:
Fourth, use bond pricing formula with the appropriate discount rate (here, 12%):
(T
PBOND
1
120
1000
+
120
1000 1120
+
1.12
C
F
+
1000
%3D
%3D
(1+ r)' )' (1+r)"
(1.12)'
(1.12)' 1.12
1.12
\t=1
12% coupon (APR, compounded quarterly), matures in one year, r=4% per quarter [Here, the
discount rate is ready to use, while the coupon rate is still in its marketing-gimmick form.]
b. 12% coupon (APR, compounded semi-annually), matures in two years, r=6% per 6 months
а.
Transcribed Image Text:5. BOND PRICING. Find PBOND for each of the following $1000 par value bonds. Use a calculator to find the correct answers. Round to the nearest penny ($0.01). Example: 12% coupon (APR, compounded annually), matures in one year, r=12% 12%APR 12% 0.12 First, convert the coupon rate from APR to periodic rate: lyear уear Second, find the соuроn: Coupon - (СouponRate)(Face) — (0.12)(1000) — 120 - С %3D (1yrs = lyr =T yr (lyr) %3D Third, find the relevant number of periods: Fourth, use bond pricing formula with the appropriate discount rate (here, 12%): (T PBOND 1 120 1000 + 120 1000 1120 + 1.12 C F + 1000 %3D %3D (1+ r)' )' (1+r)" (1.12)' (1.12)' 1.12 1.12 \t=1 12% coupon (APR, compounded quarterly), matures in one year, r=4% per quarter [Here, the discount rate is ready to use, while the coupon rate is still in its marketing-gimmick form.] b. 12% coupon (APR, compounded semi-annually), matures in two years, r=6% per 6 months а.
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