Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 4% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500
= (1 (1 + ) ) + (1 + )
500
= (1 (1 + 4%)10 ) + 10,000(1 + 4%)10
4%
= $10,811.09
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,
4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 5% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500
= (1 (1 + ) ) + (1 + )
500
= (1 (1 + 5%)10 ) + 10,000(1 + 5%)10
5%
= $10,000
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 6% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,
4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 5,100 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.
1. Calculate the annual coupon payment.
=
= 10% 5,000
= $500
+
=
+
2
5,000 5,100
500 +
= 5
5,000 + 5,100
2
= 9.5%
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,
4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 5,000 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.
+
=
+
2
5,000 5,000
500 +
= 5
5,000 + 5,000
2
= 10%
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 4,850 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.
+
=
+
2
5,000 4,850
500 +
= 5
5,000 + 4,850
2
= 10.76%
4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,