Answers
Question-29
Coupon (or Current) Yield of the Bond = Annual Coupon Amount / Current Market Price of the Bond
= ($1,000 x 6%) / $995
= $60 / $995
= 0.0603
Question-30
The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value
Face Value of the Bond = $1,000
Semi-annual Coupon Amount = $35 [$1,000 x 7% x ½]
Semi-annual Yield to Maturity = 3% [6% x ½]
Maturity Period = 18 Years [9 Years x 2]
Therefore, the Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value
= $35[PVIFA 3%, 18 Years] + $1,000[PVIF 3%, 18 Years]
= [$35 x 13.75351] + [$1,000 x 0.58739]
= $481.38 + $587.39
= $1,068.77
“Therefore, the Price of the Bond will be $1,068.77”
NOTE
-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.
-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.
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