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15 May, 16:19

Consider a bond (with par value = $1,000) paying a coupon rate of 7% per year semiannually when the market interest rate is only 3% per half-year. The bond has three years until maturity. a. Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places.)

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  1. 15 May, 17:53
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    Using a financial calculator; input the following;

    Duration to maturity; N = 3*2 = 6

    Par value of the bond; FV = 1000

    Semiannual interest rate; I = 3%

    Semiannual coupon payment; PMT = (7%/2) * 1000 = 35

    then compute the price; i. e the present value; CPT PV = 1027.09

    The price after 6-months would be as follows;

    Duration to maturity; N = 2.5*2 = 5

    Par value of the bond; FV = 1000

    Semiannual interest rate; I = 3%

    Semiannual coupon payment; PMT = (7%/2) * 1000 = 35

    then compute the price; i. e the present value; CPT PV = 1022.90
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