Homework #3 A) A new bond was issued from a utility company was just issued. The bond has a coupon rate of 7% compounded semi - annually and a life of 10 years. The face value (Par Value) of the bond is $1,000. Draw the bonds time diagram and calculate what would you pay for the bond today? B) Two years later, assume interest rates drop to 4% compounded semi - annually for like kind securities in the market, what is the value of the bond now? C) Assume someone purchased the bond in year 2 of the bond for $1, 150 instead of the value you calculated in part B. If that person holds the bond until maturity (8 years remain) what is the Yield to Maturity (YTM) on the bond?

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Q: Duration of this bond years

A: We can determine the duration of the bond by rearranging the formula below:

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Q: What is its YTC?

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A:

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Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.