A $5000 Mauranol, Inc., corporate bond matures in 10 years and has a coupon rate of 7.2%

Question:

A $5000 Mauranol, Inc., corporate bond matures in 10 years and has a coupon rate of 7.2% paid semiannually.

(a) If the yield rate is 8% compounded semiannually, find the bond's market price.

(b) Three years later the yield rate is 5.8%. If the bond holder wishes to sell at this time, what is the bond's current market price?

(c) If you bought a $5000 Mauranol, Inc., bond at the price in part (a), collected 3 years of coupons, and sold at the price in part (b), what amount would you have earned on your original investment?

(d) Suppose you made a single investment with principal equal to the amount paid in part (a), and after 3 years you received a single lump sum return equal to the amount from part (c). What interest rate compounded semiannually would you have earned?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...