Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon ra is5% payable semi-annually. Find the fair price of this bond, ossuming that the annual market rate is 4%. Given: Coupon rate r= 5%, poyable semi - annually Face Value = 100,000 Time to maturity = 10 years Number of periods = 2|10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 cach, and PI00,000 at t- 10. Present Value of 100,000: 100000 1+j "1+0.04ë = 67,556.42 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1-(1+)" -1 = (1+ ) - 1 I = 0.0404 Direction: Answer the following just ike the given example above. 1. Suppose that a bond has a face value of P220, 000 and its maturity date is 6 years from now. The coupon rate is 5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 8%. 2. Suppose that a bond has a face value of P50, 000 and its maturity date is 5 years from now. The coupon rate is 4% payable quarteriy. Find the fair price of this bond, assuming that the annual market rate is 6%.
Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon ra is5% payable semi-annually. Find the fair price of this bond, ossuming that the annual market rate is 4%. Given: Coupon rate r= 5%, poyable semi - annually Face Value = 100,000 Time to maturity = 10 years Number of periods = 2|10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 cach, and PI00,000 at t- 10. Present Value of 100,000: 100000 1+j "1+0.04ë = 67,556.42 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1-(1+)" -1 = (1+ ) - 1 I = 0.0404 Direction: Answer the following just ike the given example above. 1. Suppose that a bond has a face value of P220, 000 and its maturity date is 6 years from now. The coupon rate is 5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 8%. 2. Suppose that a bond has a face value of P50, 000 and its maturity date is 5 years from now. The coupon rate is 4% payable quarteriy. Find the fair price of this bond, assuming that the annual market rate is 6%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate
is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%.
Given:
Coupon rate r= 5%, payable semi - annually
Face Value = 100.000
Time to maturity = 10 years
Number of periods = 2|10) = 20
Market rate = 4%
The bondholder receives 20 payments of P2,500 each, and
P100,000 at t- 10.
Present Value of 100,000:
F
100000
= 67,556.42
1+ jm -1+0.0410
Present Value of 20 payments of Php2500 each:
Convert 4% to equivalent semi-annual rate:
1 = (1+)"-1= (1+) -
I = 0.0404
Direction: Answer the following just like the given example above.
1. Suppose that a bond has a face value of P220, 000 and its maturity date is 6 years from now. The coupon rate is 5%
payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 8%.
2. Suppose that a bond has a face value of P50, 000 and its maturity date is 5 years from now. The coupon rate is 4%
payable quarteriy. Find the fair price of this bond, assuming that the annual market rate is 6%.
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