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Q4 - Bond Valuation (25 min) Value the following bonds 20-year bond with a face value of $10,000 with an annual coupon of 5% and market rate (yield to maturity or YTM) of 6.5% 10-year bond with a coupon of 8% (split into quarterly payments), face value of $5000 and YTM of 7% (annually) 5-year bond with a face value of $4,000, with semi-annual coupon payments, with a coupon rate equal to YTM.

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Answer #1

1)20-year bond, face value = $10,000 with an annual coupon = 5%, YTM = 6.5%

FV Price = Sum of Discounted coupons +7 (1 + r) 1- (1+r)-n 10000 Price = Coupon x - *(1 +0.065)20 1- (1 + 0.065) -20 10000 P

2) 10-year bond, quarterly coupon = 8%, face value = $5000 and YTM = 7%

FV Price = Sum of Discounted coupons +7 Price = Sum of Discounted coupons + + _ y exfrequency (1+ Frecvenenx frequency 1-(1+

3) When coupon rate = YTM no matter what the numbers are, the value of the bond is always = face value so we dont even need the percentages and do the calculatesion, the value of this bond will be $4000

When coupon rate> YTM, Price > Face value and

When coupon rate < YTM, Price < Face value and

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