question archive Consider two 30-year bonds, P and Q with the same purchase price
Consider two 30-year bonds, P and Q with the same purchase price
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Consider two 30-year bonds, P and Q with the same purchase price. Each has an annual coupon rate of 5% paid semi-annually and a par value of RM500.
Bond P has an annual nominal yield rate of 5% compounded semi-annually, and a redemption value of RM575.
Bond Q has an annual nominal yield rate of j% compounded semi-annually, and a redemption value of RM450.
(i) Calculate j.
(ii) The book value of Bond Q after the payment of 25th coupon
(iii) The amount for accumulation of discount in the 36th coupon of Bond P.
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i. The annual nominal yield rate is 5% same as coupon rate
ii) Book value of the Bond Q after payment of 25th coupon:
The difference between the par value and redemption value i.e. 500-450 = 50 RM
50 RM amortized over 60 (30 yrs x 2) semi - annual periods. Then the amount amortized per period is equal to 50
60 = 0.8333
Book value of bond Q after 25th coupon payment is equal to 500 - (0.8333*25) = 479.1677
iii) Amount for accumulation of discount in 36th coupon will be
75 RM 60 = 1.25
1.25 x 36 = 45
Amount for accumulation will be 45 RM
