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    Andrew Whaley
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    An 8-year bond with $100 face value and 6% annual coupon rate compounded semiannually is given. The bond's amortized value after the 8th coupon is $121.13 and after the 10th coupon is $120.39. To find the original purchase price, the solution uses the bond's yield rate of 3% semiannually to determine the coupon amount and sets up equations relating the amortized value and outstanding balance to solve for the original price of $100.

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    Feb 20 Fm

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    An 8-year bond with $100 face value and 6% annual coupon rate compounded semiannually is given. The bond's amortized value after the 8th coupon is $121.13 and after the 10th coupon is $120.39. To find the original purchase price, the solution uses the bond's yield rate of 3% semiannually to determine the coupon amount and sets up equations relating the amortized value and outstanding balance to solve for the original price of $100.

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    6 views2 pages

    Feb 20 FM

    Uploaded by

    Andrew Whaley
    An 8-year bond with $100 face value and 6% annual coupon rate compounded semiannually is given. The bond's amortized value after the 8th coupon is $121.13 and after the 10th coupon is $120.39. To find the original purchase price, the solution uses the bond's yield rate of 3% semiannually to determine the coupon amount and sets up equations relating the amortized value and outstanding balance to solve for the original price of $100.

    Copyright:

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    Download as PDF, TXT or read online from Scribd
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    EXAM FM QUESTIONS OF THE WEEK

    S. Broverman, 2006

    Week of February 20/06


    An 8-year bond has face and redemption amount 100. The bond has level semiannual coupons and the yield rate is a nominal annual rate of 6% compounded semiannually. The bond's amortized value just after the 8th coupon is 121.13 and just after the 10th coupon it is 120.39. Find the original purchase price of the bond.

    The solution can be found below.

    Week of February 20/06 - Solution


    The yield rate is 3% every 6 months. Suppose that coupon amount is O . The amortized value from coupon > to coupon > " follows the accumulation relationship FZ> "!$ O FZ>" . Therefore, "#""$"!$ O FZ* , and FZ* "!$ O "#!$* , so that "#""$"!$# O"!$ " "#!$* . Solving for O results in O %! . The amortized value after the 8th coupon is the same as the outstanding balance of a loan amount T (the original bond price) with level payments of O , so that, retrospectively, "#""$ T "!$) O=)l!$ T "!$) %=)l!$ , from which we get T "#$(! .

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