BONDS VALUATION

Question 1

Use given below information to attempt next four parts:

Investor bought 20-year bond with a coupon rate of 10% at face value of Rs.1000. After three years Yield to Maturity (YTM) is 9% in market. Investor decided to sell bond after holding it for three years.

a)What should be Yield to Maturity (YTM) in market when investor bought bond?

b)How much interest investor received during his holding period?

c)At what price investor sold bond?

Question 2

a)A 30-year bond with 10% coupon rate and Rs.1000 face value, yield to maturity is 8%. Assuming annual coupon payment, calculate the price of the bond.

b)A 10-year bond has 8% coupon rate and Rs.1000 face value. If the current Price of the bond is Rs. 1150, calculate current yield assuming annual interest.

c)A ten-year bond has 12% coupon rate and face value of Rs. 1,000. If the bond maturity on the bond is 11%, calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments.

d)A four-year bond has 10% coupon rate and a face value of Rs. 1,000. If the current Price of the bond is 1100, calculate the yield to maturity of the bond (assuming annual interest payments).