Determination of Bond Price and Sensitivity to Interest Rate Changes

   

Added on  2023-03-23

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FINANCE
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Determination of Bond Price and Sensitivity to Interest Rate Changes_1
Question 4
(a) The determination of the bond price is as shown below.
Bond 1: Maturity Date: 1st April, 2022
The key parameters of this bond are specified below.
Par value = $ 100,000
Interest rate = 10% p.a.
Coupon rate = 8% paid semi-annually
Coupon paid by the bond = (8/100)*(100000/2) = $ 4,000 every six months
Time to maturity = April 1, 2019 to April 1, 2022 or 3 years which amount to 6 semi-annual
periods.
The price of this bond as on April 1, 2019 would be the discounted value of all future
payments which is shown below.
Bond 2: Maturity Date: 1st April, 2026
The key parameters of this bond are specified below.
Par value = $ 100,000
Interest rate = 10% p.a.
Coupon rate = 8% paid semi-annually
Coupon paid by the bond = (8/100)*(100000/2) = $ 4,000 every six months
Time to maturity = April 1, 2019 to April 1, 2026 or 7 years which amount to 14 semi-annual
periods.
2
Determination of Bond Price and Sensitivity to Interest Rate Changes_2

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