Question

Consider a bond with a 5% annual coupon and a face value of $1,200. Complete the following table. (Enter your responses rounded to two decimal places.) Years to Maturity Yield to Maturity Current Price 3% AW A

Answer 1

Coupon payment = 5%*1200

Coupon payment = $60

Case 1:

Current price = 60*(1-1/(1+3%)^3)/.03 + 1200/1.03^3

Current price = $1267.89

Case 2:

Current price = 60*(1-1/(1+5%)^3)/.05 + 1200/1.05^3

Current price = $1200

Case 3:

Current price = 60*(1-1/(1+5%)^4)/.05 + 1200/1.05^4

Current price = $1200

Case 4:

Current price = 60*(1-1/(1+3%)^6)/.03 + 1200/1.03^6

Current price = $1330.01

Case 5:

Current price = 60*(1-1/(1+7%)^6)/.07 + 1200/1.07^6

Current price = $1085.6

So, following table is prepared.

Years to Maturity Yield to Maturity Current Price 3% S1267.89 5% S 1200 5% 1200 3% 1330.01 7% 1085.6