lntroduction to Bond Yields and

Prices 5Ot

(2t

Il It E I I

PV

of
(3y
949,243
0.04013 (4) Years 0.5 1.0
1.5
2.O

(1)

Cash Flows

Future Date
6 months
1 year 1.5 years 2 years

(x

10,000) 38.095 36.281

(3)

(4)

o.o2ao7

0,03822
0.03640 0.03467 0.03302 0.03145

o.03822
0.05460 0.06934 0.08255 0.09435 2.35863

: t
I

34.554
32.908 31.341 29.849

2.5 years
3 years

2.5 3.0 3.0 Duration

3 years

746.215 949.246

o.78612
1.00210

&builL
tffi!

Sum

2.71749

2.72yeats

h.d{f rfrrehrd

H*d

17-1

Using the information in demonstration Problem 17-1, if the coupon rate for the bond is
10 percent and the discount rate is 8 percent, with the same three years to maturity, show that the price of the bond is Rp10,515,400 with annual discounting and Rp10,522,400 with semiannual discounting. Use a calculator to determine the discount factors.

What would be the price of this bond if both the coupon rate and the discount rate were
10 percent?
17

-2

Using the information in Demonstt'ation Problem

these problems.

17

-2, solve for the price of the bond in

Problem 17-1 using both annual and semiannual discounting. Use a calculator to solve

7-3

With reference to Problem

paid quarterly?

17

-2, what would be the price of the bond if the coupon were

17-4 17-5

Calculate the price of a 10 percent coupon bond with eight years to maturity, given an
appropriate discount rate of 12 percent, using both annual and semiannual discounting.

Calculate the price of the bond in Problem

17

-4 if the maturity is 20 years rather than

8 years. Use semiannual discounting and the tables

in the appendix. Which of Malkiel's

principles are illustrated when comparing the price of this bond to the price determined

in Problem 17-l?
1

7-6

The YTM on a l0 percent, 1S-year bond is 12 percent. Calculate the price ofthe bond. Calculate the YTM for a l0-year zero-coupon bond sold at Rp4 million. Recalculate the

17-7

YTM if the bond had been priced at Rp3 million.

ntuh

17-8 17-g

Calculate the realized compound yield for a 10 percent bond with 20 years to maturity and an expected reinvestment rate of8 percent.

Consider a 12 percent l0-year bond purchased at face value. Based on Table

assuming a reinvestment rate of l0 percent, calculate:

l7-l

and

a. b. c.

theinterest-on-interest
the total return the realized return
a

17-10 Consider

junk bond with a

12 percent coupon and 20 years to maturity. The current

required rate of return for this bond is 15 percent. What is its price? What would be its price ifthe required yield rose to 17 percent? 20 percent?