Month 12 18 24 30 36 Cash Flow 190 190 190 190 190 10, 190 What is the market price of the bond when the bond is issued if the market requires an annual yield of 3.5% compounded monthly? There is more than one way to solve this problem, but here is a hint: Step 1: figure out the annual yield, compounded semi-annually, that results in a discount factor at month 12 equal to the discount factor given the market’s requirement of 3.5% annual yield, compounded monthly. Step 2: use this yield, compounded semi-annually to PV the cash flows.
Month 12 18 24 30 36 Cash Flow 190 190 190 190 190 10, 190 What is the market price of the bond when the bond is issued if the market requires an annual yield of 3.5% compounded monthly? There is more than one way to solve this problem, but here is a hint: Step 1: figure out the annual yield, compounded semi-annually, that results in a discount factor at month 12 equal to the discount factor given the market’s requirement of 3.5% annual yield, compounded monthly. Step 2: use this yield, compounded semi-annually to PV the cash flows.
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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As Treasurer of a company, you are about to issue a 10,000 bond maturing in three years with a 3.8% coupon that pays interest semi-annually:
Transcribed Image Text:Month
6.
12
18
24
30
36
Cash Flow
190
190
190
190
190
10, 190
What is the market price of the bond when the bond is issued if the market requires an
annual yield of 3.5% compounded monthly?
There is more than one way to solve this problem, but here is a hint:
Step 1: figure out the annual yield, compounded semi-annually, that results in a discount
factor at month 12 equal to the discount factor given the market's requirement of 3.5%
annual yield, compounded monthly.
Step 2: use this yield, compounded semi-annually to PV the cash flows.
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