A bond with a coupon rate of 7.30% has a price that today equals $868.92. The $1,000 face value bond pays coupon every 6 months, 30 coupons remain, and a coupon was paid yesterday. Suppose you buy this bond at today’s price and hold it so that you receive 20 coupons. You sell the bond upon receiving that last coupon. Find the selling price if the bond’s YTM remains constant

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Asked Jul 3, 2019
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A bond with a coupon rate of 7.30% has a price that today equals $868.92. The $1,000 face value bond pays coupon every 6 months, 30 coupons remain, and a coupon was paid yesterday. Suppose you buy this bond at today’s price and hold it so that you receive 20 coupons. You sell the bond upon receiving that last coupon. Find the selling price if the bond’s YTM remains constant

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Expert Answer

Step 1

Calculation of Yield to Maturity of the Bond:

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fRATE (B4,B3.-B2,B1)*2 B5 C B 1 Face Vahue 2 Bond Price 3 Coupon Payment| $36.50 4 No. of Periods 5 Yield to Maturity 8.90% $1,000 $868.92 30

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Step 2

Excel Spreadsheet:

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fiRATE(B4,B3,-B2,B1)*2 B5 1000 868.92 3 Coupon Payment =1000*(7.3%/2) 1 Face Value 2 Bond Price 4 No. of Periods [30 5 Yield to Maturity =RATE(B4,B3,-B2,B1)*2

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Step 3

Calculation of Selling Price of Bond:

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B5 fPV(B4,B3.-B2,-B1) 1 Face Value 2 Coupon Payment S36.50 $1,000 3 No. of Periods 10 Yield to Maturity 4.45% 4 Bond Price $936.54

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