1 answer

Fill in the missing information in the given table:                      (1 mark) Bond # 1 2 3 4...

Question:

  1. Fill in the missing information in the given table:                      (1 mark)

Bond #

1

2

3

4

1-year strip bond

2-year strip bond

2-year 6% coupon bond

2-year 7% coupon bond

Purchase price ($xxxx.xx)

–950.00

Time 1 cash flow

+1000.00

0

+60.00

+70.00

Time 2 cash flow

0

+1000.00

+1060.00

+1070.00

Yield to maturity (xx.xx%)

5.50%

                                                                                                        


Answers

Bond# 1 2 3 4
Purchase price -950 -902(assuming same YTM as of 1 year strip bond)

using ytm formula

YTM=(int+(FV-PV)/t)/(fv+pv)/2

Purchase price=1009.23

1000

when no YTM is given we consider bonds are issued at par

Time 1 cash flow 1000 0 60 70
time 2 cash flow 0 1000 1060 1070
yield to maturity 50/950*100=5.26% 5.26% 5.5% 7%
.

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