Part 2:Problem Solving

Solve the following problem using theformula.

Using the information below, compute the prices of the following SEMI- ANNUAL payment bonds. Show your computation in every case.

Per value Coupon Rate Yield to Maturity Years to Maturity

$ 5,000 10 12% 20

$ 5,000 10 10 20

$ 5,000 10 6 20

A) Indicate which bond is selling at discount, par and premium. (Use the formula)

B) What is the relationship between bond prices and interest rates ?