1.
Vichara
is famous member of Unicity bond, he bought with the first price of each bond
$100.00. He willing to sell his 5 bonds in the second market (sell to his
friends). His bond will last 2 years.
Each coupon rate will be return to him every year is $ 30.00. Unicity market
provides him interest rate according to real rate return = 1.6 %, inflation
rate 0.4%, and risk return is 1 %.
Please find out the total price of all
of his bonds will be sold in the second market!
According
to the formula of Bond Price:
Where :
-
Pb
= is bond price
-
Pn
= par value = 100
-
I
= total return of each coupon = 30
-
Y
= real rate return + inflation rate + risk return = 1.6 + 0.4 + 1 = 3% = 0.03
-
t
= from 1 to n
-
n
= 2
So Pb = [(30/1.03)+(30/(1.03)x(1.03))]+(100/(1.03)x(1.03)) = 151.66
The total price
of all of his bonds is = 5 x Pb = $758.3
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