Question

Sydney purchases a newly issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 5% coupon rat

Answer 1

Answer: $10095

Explanation:

First, we'll calculate the present value which will be:

= 600/(1+5%) + 600/(1+5%)² + 10000/(1+5%)²

= 600/(1+0.05) + 600/(1+0.05)² + 10000/(1+0.05)²

= 600/(1.05) + 600/1.1025 + 10000/1.1025

= 571.43 + 544.22 + 9070.30

= 10185.95

Then, we'll deduct the first coupon gotten. Thai will be:

= 10185.95 - 571.43

= 9614.52

Then, the price that Sydney will receive for his bond if newly issued will be:

= $9614.52 × (1+5%)

= $9614.52 × 1.05

= $10095