What is the current price of pure discount bond

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a) Merton Corporation has a 6 percent semiannual coupon bond which has 5 years until maturity, and the yield to maturity is 8 percent.

(i) What interest (coupon) payments do bondholders receive each year?

(ii) At what price does the bond sell?

(iii) What will be the bond price if the yield to maturity decreases to 4 percent?

b) Siblings Corp. has issued consol bonds with annual coupon payments of $65. If the required rate of return on these bonds at the time they were issued was 7.5 percent, what was the selling price then? If the required return today is 8.5 percent, at what price you will be willing pay for the consols?

c) A pure discount bond has 10 years until maturity and will pay $1,000 at maturity. If the YTM is 15%, what is the current price of this pure discount bond?

Reference no: EM132150440

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