2.13 Dollar Price and Yield-to-Maturity: More Problems
Exercises
You’ll need calculators and interest rate tables for this!
Problems:
- What is the dollar price of a bond that annually pays 7% per year for 3 years and is discounted at 7%?
- What is the dollar price of a 10-year bond that pays semiannual interest at a rate of 10%? Use 8% as the discount rate.
- A bond carries a semi-annual, 7% coupon for 20 years. The relevant Yield-to-Maturity is 8%. What is the dollar price?
- For each problem, state what the dollar price would be if the bond carried a 0% coupon.
Use the following spreadsheet to answer the problems.
| Problem 1 | Problem 2 | Problem 3 | |
|---|---|---|---|
| Coupon Cash Flow | |||
| PV Annuity Factor | |||
| PV of the Coupon | |||
| Par Value | |||
| PV Factor | |||
| PV of the Par Value | |||
| Total PV | |||
| Price (% of Par) | |||
| Discount/Par/Premium? | |||
