Question 6:
For both the bonds assuming Face value = 1K, PMT i.e. coupon = 48 @ 8.4% semiannually(8.4% / 2) , Number of payments = 10 (5 yrs semiannual, 5*2)
For BBB rated corporate bond I/Y = 9 / 2 (semiannual) therefore price 976.261
For Treasury bond I/Y = 7.5 / 2 (semiannual) therefore price 1036.95
Question 7:
For both the bonds assuming Face value = 1K, Number of payments = 10 (5 yrs semiannual, 5*2)
Bond with coupon rate 5%
PMT = 25 (5% of 1000 = 50 / 2 aince coupon is semiannual)
When,
I/Y = 8 / 2 (Semiannual) , price = 878.33
I/Y = 7 / 2 (Semiannual), price = 916.83
Price difference = 916.83-878.33 = 38.50
Bond with coupon rate 10%
PMT = 50(10% of 1000 = 100 / 2 since coupon is semiannual)
When,
I/Y = 8 / 2 (Semiannual) , price = 1081.10
I/Y = 7 / 2 (Semiannual), price = 1124.74
Price difference = 1124.74 - 1081.10 = 43.63
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