A bond has a par value of $1,000, a current yield of 6.69 percent, and semiannual coupon payments. The bond is quoted at 98.44. What is the amount of each coupon payment?

A bond has a par value of $1,000, a current yield of 6.69 percent, and semiannual coupon payments. The bond is quoted at 98.44. What is the amount of each coupon payment?

Multiple Choice

·       

$37.04

·       

$33.45

Incorrect

·       

$32.93

Correct

·       

$66.90

·       

$65.86

Explanation

Coupon payment = [.0669 × (.9844 × $1,000)/2] = $32.93

The Lo Sun Corporation offers a 5.2 percent bond with a current market price of $865.50. The yield to maturity is 6.24 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures?
 

26.77 years 

33.29 years

51.92 years

13.39 years

53.54 years

Explanation

Semi-annual interest rate = 0.0624/2 = 0.03120

PV=$865.50=[(0.052×$1,000)/2]×1−[1/(1+0.03120)t]0.03120+$1,000/(1+0.03120)tPV=$865.50=[(0.052×$1,000)/2]×1−[1/(1+0.03120)t]0.03120+$1,000/(1+0.03120)t

(Note: t is the number of semi-annual periods)

$865.50=$26.00×1−[1/(1.03120)t]0.03120+$1,000/(1.03120)t$865.50=$26.00×1−[1/(1.03120)t]0.03120+$1,000/(1.03120)t

Dividing by $26.00, you get:
33.2885 = {[1 – 1/1.0312^t]/0.0312} + 38.4615/1.0312^t

Multiplying by 0.0312, you get:
1.0386 = 1 – 1/1.0312^t + 1.2000/1.0312^t
0.0386 = 0.2000/1.0312^t
1.0312^t = 5.1813
t = ln5.1813/ln1.0312 =  1.6451/0.0307 = 53.54 semi-annual periods = 26.77 years